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CoStar CCRSI Index: Property Pricing Posts Steady Gains in November

Values Buoyed by Strong Absorption Across All Major Property Types
January 15, 2014
The latest CoStar Commercial Repeat Sale Indices (CCRSI) found that pricing continued on a steady upward trajectory for all types of commercial property in November 2013, boosted by the strong take-up of available space by tenants.

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 -- advanced by 0.8% and 1.1%, respectively in November 2013. The two major indices increased by 10.9% and 7.8% respectively over the 12-month period ending November 2013.

Contributing to the increase in property values was the significant increase in net absorption of available space as commercial tenants occupied an additional 380 million square feet of office, retail and industrial space throughout the U.S. in 2013. The increased demand for commercial space was the largest annual gain in net absorption since 2007, according to initial annual totals by CoStar.

The Investment Grade segment of the property market continued to dominate in space absorption. However, the pace of absorption in the General Commercial segment has improved significantly as the recovery continued to accelerate in secondary and tertiary U.S. markets. As a result, the General Commercial property segment’s share of total net absorption increased from below 30% for the last several years to 32% in 2013.

Pricing for the highest quality property in the most sought-after locations continued to attract the most consistent investor interest, according to the CCRSI. The U.S. Value-Weighted Composite Index, which weights each repeat-sale by transaction size or value (and therefore is heavily influenced by larger transactions), has increased by a cumulative 51.9% since the start of 2010, reflecting steady demand for institutional-grade property assets in top-tier metro areas that led the recovery.

Recent pricing performance in the U.S. Equal-Weighted Composite Index, which weights each repeat-sale equally and is more heavily influenced by smaller transactions, has been more volatile. The Equal-Weighted Index was significantly more impacted by investor uncertainty over the economy and interest rates, but it has since rebounded. The Equal-Weighted Index has increased 18.4% from its trough in 2011.

Meanwhile, the ravaging effect on property values that occurred during the recession continued to become a distant memory as the percentage of commercial property selling at distressed prices continues to decline, falling roughly two-thirds from the peak in 2011.

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