CoStar Repeat Sale Numbers Show Gains In General CRE Prices Starting to Catch Up With Investment-Grade Assets
Commercial real estate
prices posted major year-over-year gains across the board in July, rebounding from a somewhat moribund showing a month earlier, reflecting the steady improvement in market fundamentals for most property types.
The two broadest measures of property pricing within this month’s CoStar Commercial Repeat Sale Indices (CCRSI) report showed substantial gains in July
for both the highest-priced properties at the top end of the investment market and accelerating improvement in smaller, less expensive general CRE properties.
The report appears to represent a return to form of sorts for the commercial property recovery following a softening sales picture in June reflecting diminished investor demand across most property types in line with slowing global economic growth.
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CoStar’s Value-Weighted Composite Index for July found that U.S. commercial real estate prices surged by a strong 11.3% in the month ending July 31 over the same month one year ago as growth in pricing of higher-priced investment-grade properties continued to lead the real estate recovery. The index has now increased 33% from its market bottom in January 2010, though it remains 18.4% below its September 2007 peak.
That said, pricing gains in the less expensive general commercial real estate sector are catching up a bit with the trophy stuff. The Equal-Weighted Composite Index, which measures pricing in the broader market dominated by smaller and lower-end properties, increased by 5.9% in July compared to a year earlier, with index pricing now up 6.3% from its low ebb in March 2011.
Pricing in the broader general commercial real estate market has made significant strides in recent months, with the Equal-Weighted General Commercial Index increasing by 1.6% in July and accumulated a 3.9% gain since the beginning of 2012. At the same time, pricing in the Equal-Weighted Investment Grade Index held its own, rising 2.1% in July and increasing 5.2% from a year earlier, despite the soft economy and price volatility observed in the investment-grade segment earlier in the year.
This month's CCRSI, which provides the CRE market's first look at July property pricing, is based on 741 repeat sales in July. The more than 100,000 repeat sales tracked by CoStar Group since 1996 constitute the broadest measure of CRE repeat sale activity in the market.
In another noteworthy trend coinciding with the upward price movement evident in the CCRSI, commercial property sellers appear to be finding a more accommodating market in 2012, with for-sale properties spending less time on the sales block. The average time on market for sold properties fell by almost 2% since the end of first-quarter 2012, while the gap between initial asking price and final sales price has now narrowed by more than 2.5% since the beginning of the year.
Meanwhile, the number of properties withdrawn from the sales market by prospective sellers declined 11.4% in July from a year ago, another indication of improving investor sentiment. Only 16% of property transactions observed by CoStar in July were distressed, 20.6% lower than the peak level observed in March 2011.