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After Flurry of Year-End Activity, Commercial Property Sales See Slowdown at Start of 2016

Liquidity Indicators -- Including Asking/Final Sale Price Ratios -- Reflect Positive Environment for Continued Sales, Price Growth
February 26, 2016
Commercial property price growth moderated as transaction activity cooled considerably in January, repeating a seasonal pattern observed in previous years, according to the first 2016 release of CoStar Commercial Repeat-Sale Indices (CCRSI) data.

While monthly growth rates within price indices can be volatile, both the equal-weighted and value-weighted segments of the CCRSI U.S. Composite Index, which constitute the two broadest measures of aggregate CRE pricing, slowed in January from the robust pace of the final three months of 2015. The value-weighted U.S. Composite Index, measuring sales of core property assets, increased by 0.6% in January while the equal-weighted U.S. Composite Index declined by 0.3%. Both indices had posted average monthly growth of 0.8% between October and December 2015.

The decline in the equal-weighted index affected both the high and lower ends of the market in January, with both the Investment Grade and General Commercial sub-indices declining by 0.3%

Despite the expected January slowdown, year-over-year growth rates remain strong, with January marking the 35th straight month of double-digit annual growth in the value-weighted index and the 25th consecutive month of double-digit annual growth in the equal-weighted index.

The complete CoStar Commercial Repeat-Sale Index report is available here.The CCRSI is released each month, providing insight and analysis on pricing trends for commercial real estate.

Commercial property sales took a breather after the record deal volume at the end of 2015, with January sale pair transaction counts and volume both declining from the previous month.

Despite the pause, the number of observed trades over the last 12 months ending on Jan. 31 of 2016 was 5% higher than over the prior 12-month period which ended in January 2015. The number of distressed trades has declined by 36% over that period, boding well pricing index stability.

Another promising sign for continued positive market conditions for price growth was continued improvements in January in investment sale liquidity measures. The average time on the market for properties put up for sale dropped sharply by 19.7% in the 12-month period ending in January 2016.

The ratio of asking prices to final sale prices narrowed by 3.1 percentage points during the same period to 93.5%, the highest reading for the ratio since July 2007. The share of properties taken off the market by discouraged sellers narrowed by 4.7 percentage points to 33.1% during the 12-month period ending in January.

Monthly CCRSI Results Data Through January 2016

% Change1 Month Earlier1 Quarter Earlier1 Year EarlierTrough to Current
Value-Weighted U.S. Composite Index0.6%2.1%11.6%90.9%
Equal-Weighted U.S. Composite Index-0.3%1.3%10.5%50.7%
U.S. Investment-Grade Index-0.3%1.2%8.7%64.9%
U.S. General Commercial Index-0.3%-1.3%11.2%49.7%

Monthly Liquidity Indicators Data Through January 2016

Current1 Month Earlier1 Quarter Earlier1 Year Earlier
Days On Market319329354398
Sale Price-to-Asking Price Ratio 93.5%93.4%93.4%90.4%
Withdrawal Rate 32.7%33.3%33.4%34.1%

Market Fundamentals Data Through December 2015

Annual Net Absorption (In Millions of Square Feet)
Investment-Grade 239.1289.4379.8466.8
General Commercial 98.8122.2182.3182.4

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