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Monday, November 18, 2013

CoStar: Commercial Real Estate prices mostly unchanged in September, Up 8.4% Year-over-year

by Calculated Risk on 11/18/2013 12:31:00 PM

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

From CoStar: CRE Prices Gain Traction Across All Property Types During Third Quarter 2013 Despite Uncertainty Over Economic Policy

CRE PRICES POST MODEST QUARTERLY GAINS DESPITE SEPTEMBER LULL: After posting modest gains throughout the third quarter of 2013, price growth for commercial property was mixed in September, reflecting the uncertainty that existed over economic policy and an uptick in interest 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—saw little movement for the month. The value-weighted index, which is influenced by larger transactions, expanded by 0.3% in September while the equal-weighted index, which reflects more numerous smaller transactions, dipped by 0.6% in September. However, both indices posted modest gains in the third quarter of 2013, and advanced 8.4% on an annual basis.
PRICE GROWTH ACCELERATING IN SECONDARY REGIONS AND PROPERTY TYPES: With pricing for multifamily assets in the Northeast and West regions approaching peak or near-peak levels, investors have continued to expand their search for yield beyond core gateway markets, leading to stronger price gains in the office, retail and industrial sectors in other regions, including the Midwest region. After bottoming more than a year later than in the other regions, the Midwest Composite Index has advanced by 15.7% from its trough in mid-2012, buoyed by impressive pricing growth in the multifamily and retail sectors.

DISTRESS SALES CONTINUE TO WANE: The percentage of commercial property selling at distressed prices dropped to 11.6% in September 2013 from more than 24% one year earlier, enabling banks and other lenders to focus on growth opportunities. The multifamily sector recorded the lowest level of distress in the third quarter of 2013 at 9.5%, which is a cumulative 77% decline from peak levels reached in 2010. The share of distress deals in the other property types ranges from 12.1% in the industrial sector to 15.8% in the office sector. On a regional basis, distress levels have largely worked through the system in the Northeast, with just 7.1% of deals selling at distressed prices, while the Midwest has the furthest to recover with over 23% of property still selling at distressed levels.
emphasis added
Commercial Real Estate Prices Click on graph for larger image.

This graph from CoStar shows the Value-Weighted and Equal-Weighted indexes.  CoStar reported that the Value-Weighted index is up 48.8% from the bottom (showing the earlier and stronger demand for higher end properties) and up 8.4% year-over-year. However the Equal-Weighted index is only up 15.5% from the bottom, and also up 8.4% year-over-year.

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