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CRE Price Recovery Accelerates In May, According to CoStar CCRSI Analysis

 

This month’s CoStar Commercial Repeat Sale Indices (CCRSI) provide the market’s first look at May 2013 commercial real estate pricing.

Based on 1,220 repeat sales in May 2013 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

May 2013 CCRSI National Results Highlights

>> CRE PRICES ADVANCE ACROSS THE BOARD IN MAY 

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 0.7% and 2.0%, respectively, in the month of May 2013, reflecting continued improvement in market fundamentals and increased investment activity.

The value-weighted index, which is heavily influenced by larger transactions and typically tracks with high quality core real estate prices, has now increased by 41% from its most recent trough in 2010. For comparison, the equal-weighted index, which is influenced by smaller, more numerous opportunistic transactions, has improved by 10% from its bottom in 2011.

>> INVESTMENT GRADE INDEX REACHES HIGHEST LEVEL IN MORE THAN 4 YEARS

Within the equal-weighted U.S. Composite Index, the Investment Grade segment shook off the seasonal slump of the previous months and surged ahead by 2.6% in May 2013. The Investment Grade index, which broadly encompasses upper-middle tier properties, has now recovered by 24.6% since prices for investment-grade property reached a trough in October 2009.

Pricing in the General Commercial segment has taken longer to recover, but investor demand for smaller and lower-quality commercial property assets has risen in tandem with those in the investment grade segment in recent months. Pricing in the General Commercial segment advanced 1.7% from the previous month and 8.2% from its recent nadir in the first quarter of 2011 as investment activity has increasingly extended into secondary markets and property types.

>> STRONG 2Q 2013 ABSORPTION IN BOTH INVESTMENT GRADE AND GENERAL COMMERCIAL SEGMENTS SUPPORTS PRICING GAINS

Net absorption of available space for the three major property types — office, retail, and industrial — has been positive over the past three years. For the majority of that period, core office markets, including New York, San Francisco and Houston, and large distribution markets such as Dallas and Chicago, have led absorption 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 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 declined to an average of 14.1% in April and May, the lowest two-month average on record since 2008. The decline in the number of distressed trades continues to support higher, more consistent pricing and has enhanced market liquidity by giving buyers and sellers greater confidence to do deals.

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