Property Prices Advance on Stronger Fundamentals, Increased Lending and Improved Liquidity
Shrugging off a seasonal slowdown in trading activity, commercial real estate prices continued their steady upward movement in January, according to the latest CoStar Commercial Repeat Sale Indices (CCRSI), analyzing commercial property sales through January 2014.
The steady pricing trends in January reflected continuing solid fundamentals, increased support of property sales by mortgage lenders and a rapid decline in distressed sales.
The CCRSI Value-Weighted U.S. Composite Index slipped by a slight 0.6% in January, reflecting the post-year-end slowdown in activity among larger properties. However, the Equal-Weighted U.S. Composite Index -- which is more heavily influenced by more numerous smaller transactions -- remained on an upward trajectory, increasing by 1% in January.
Once again, in a pattern developed over the last few years, the number of repeat property sales in January fell from the previous several months as trading activity returned to a more normal level following the frenzied year-end pace. The January slowdown in investment activity has typically been accompanied by a first-quarter price decline as well.
Price Gains Consistent at High and Low Ends
The recovery in fundamentals has now broadened across the size and quality spectrum in many markets, which is reflected in the consistent pricing gains in both indices over the last year.
The equal-weighted U.S. Investment Grade Index climbed 17.5% and the equal-weighted U.S. General Commercial Index rose 10.9% for the 12 months ending in January.
Rising occupancies have helped stabilize property income levels across a growing number of markets, acting as a positive force on CRE pricing, according to the latest CCRSI report.
Gap Narrowing Between Buyers, Sellers
The number of days on the market for commercial property prior to sale has consistently declined over the last year, falling from 432 days in January 2013 to about 417 days in the first month of 2014, according to the report. The gap between asking and actual sale prices closed by more than one percentage point over the same period.
While these indicators show improvement, buyers and sellers still remain far apart compared to historic averages, suggesting that there is further room for liquidity to increase in 2014.
Editor's Note: The complete CCRSI report, including graphs and charts providing more detailed information on investment grade and general sales activity, is available here.
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