Thursday, April 18, 2013

CoStar: Commercial Real Estate prices up 5.1% Year-over-year in February

by Bill McBride on 4/18/2013 01:09:00 PM

Here is a price index for commercial real estate that I follow. 

From CoStar: Pricing Recovery for Commercial Property Continues in February Despite Seasonal Volatility

PRICING RECOVERY CONTINUES DESPITE SEASONAL VOLATILITY: The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—dipped by 0.7% and 1.4%, respectively, in the month of February 2013, reflecting a continuation of a seasonal pattern first observed in January, in which commercial real estate prices gave back some of the pricing gains from the surge in sales activity at the close of 2012. Despite the recent seasonal dip in activity, commercial real estate prices are still up significantly from year ago levels. The equal-weighted index increased 6.0% since February 2012, while value-weighted index expanded by 5.1% during the same period.

ABSORPTION POSTS SOLID GAINS IN THE FIRST QUARTER: The relative performance of the General Commercial and Investment Grade indices is tied to market fundamentals. Net absorption of available space for the three major property types – office, retail, and industrial – has been positive over the past three years. However, for the majority of that period, absorption has been stronger among properties in the Investment Grade segment as reflected by the faster pricing growth in this index since 2009. More recently though, the General Commercial segment has posted more robust gains in absorption as well, indicating a broader and more sustained commercial real estate recovery.

DISTRESS SALES DECLINE WITH IMPROVING FUNDAMENTALS: The percentage of commercial property selling at distressed prices dropped to 15.9% in February 2013 from over 18% for the previous month.
emphasis added
Commercial Real Estate Prices Click on graph for larger image.

This graph from CoStar shows the Value-Weighted and Equal-Weighted indexes. As CoStar noted, the Value-Weighted index is up 36.7% from the bottom (showing the demand for higher end properties) and up 5.1% year-over-year. However the Equal-Weighted index is only up 7.1% from the bottom, and up 6.0% year-over-year.

Note: These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.