Seasonal Factors, Slowdown Following December's Hectic Deal Pace Results In Mixed Numbers For January
U.S. commercial real estate
sales transaction volume tapered off and pricing leveled in January in a seasonal slowdown in trading activity following December's busy year-end burst of activity, according to this month's analysis of repeat-sale pairs tracked by the CoStar Commercial Repeat Sale Indices (CCRSI).
While January's seasonal fluctuation resulted in a mixed picture for the CCRSI's Composite indices, property market pricing remained on an upward trajectory, based on the 703 repeat sales recorded in January and more than 100,000 sale pairs since 1996 observed by CoStar.
The narrowing gap between the initial asking and final sale prices -- and the dwindling time that for-sale properties are spending on the market -- show increased asset liquidity and improved investor sentiment, according to the report based on sales through Jan. 31, 2013.
The average time that properties are on the market declined 2.7% from its recent second quarter 2012 peak. Similarly, the spread between the price a seller asks and the price a buyer ultimately pays has narrowed by almost 2.5% from year-ago levels and now stands at its lowest level since early 2009.
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Supported by a 40% annual increase in CRE lending
activities in 2012, "the disconnect between seller and buyer expectations is narrowing," noted CCRSI report author Dr. Ruijue Peng. "Additionally, fewer properties are being withdrawn from the market by discouraged sellers, another indication of improving investor sentiment."
The U.S. Value-Weighted Composite Index, which weights each repeat sale by transaction size or value and is therefore heavily influenced by larger transactions, ticked up slightly by 0.7% in January and is up 38% from its low point in 2010.
The U.S. Equal-Weighted Composite Index, which weights each repeat-sale by transaction equally and is thus heavily influenced by the more numerous smaller transactions in the marketplace, declined 2.9% in January, mostly due to the slowdown in trading activities following the year-end sales surge. However, because of its steady recovery throughout last year, the equal-weighted index still increased 5.5% since January 2012.
The investment grade properties segment within the equal-weighted index gave back a portion of last year’s pricing gains, contracting by 1.7% in January 2013. The seasonal adjustment in pricing levels follows a pattern in the first months of the past several years and despite January’s weaker performance, the Investment Grade Index remains slightly higher from a year ago, with cumulative gains of more than 16% from its 2009 trough.
The General Commercial Index, which also recorded moderate losses in January, is up 6.4% over January 2012. That's the best annual performance of all the major price indices, reflecting the continued broadening real estate recovery to non-core markets and throughout all property types.
As expected, CRE sales volume declined in January as the flurry of year-end 2012 deal making subsided. Repeat
sale transaction volume totaled $3.1 billion in January 2012, about one-third of the previous month’s volume.
Looming tax rate changes, in addition to the seasonal factors, likely pulled some transaction activity forward into 2012.
The transaction slowdown caused distressed sales as a percentage of total transactions to tick up in January. However, distress continues to moderate and the actual number of repeat sales involving distressed assets was the lowest in January since the summer of 2009.