Thursday, December 18, 2014

CoStar: Commercial Real Estate prices increased in October

by Bill McBride on 12/18/2014 03:27:00 PM

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

From CoStar: Commercial Real Estate Prices Post Steady Gains In October

CRE PRICES ROSE STEADILY IN OCTOBER, SUPPORTED BY BROAD BASE OF POSITIVE TRENDS. Most major property types continued to benefit from minimal speculative construction, a firming economic recovery and rising rental rates. Meanwhile, benchmark interest rates such as the 10-year Treasury continued to decline in October, a positive underlying trend for commercial real estate cap rates. 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 — increased by 0.8% and 0.9%, respectively, for October 2014.
VALUE-WEIGHTED U.S. COMPOSITE INDEX HITS RECORD HIGH IN OCTOBER, SIGNALING STRONG DEMAND FOR LARGE, INSTITUTIONAL-GRADE PROPERTIES. After climbing 0.9% in the month of October, the value-weighted U.S. Composite Index reached a record high, thanks to steady gains in recent months. The index now stands 3.9% above its prerecession peak in 2007, reflecting strong competition among investors for large, high-end commercial properties.

EQUAL-WEIGHTED U.S. COMPOSITE INDEX MOVES WITHIN 15% OF ITS PRERECESSION HIGH. While its recovery began later, the equal-weighted U.S. Composite Index, which is influenced by smaller property sales, has made solid gains and is now back to 2005 levels, although it remains 15% below its 2007 prerecession peak. This reflects the general movement of investment capital in search of higher yields into secondary markets and property types, as pricing for commercial property has escalated in the core coastal markets.
emphasis added
Commercial Real Estate Prices Click on graph for larger image.

This graph from CoStar shows the the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index indexes.

 The value weighted index is at a record high, but the equal weighted is still 15% below the pre-recession peak.

There are indexes by sector and region too.

Commercial Real Estate Distress SalesThe second graph shows the percent of distressed "pairs".

The distressed share is down from over 35% at the peak, but still elevated.

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