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CoStar National Price Indices Continue to Trend Upward at Midyear

Pricing Trends Hold Steady in Q2, Particularly for Smaller Lower-Price Properties, Despite Slight Decline in Transaction Volume from Last Year
August 1, 2017
The CoStar Commercial Repeat-Sale Index (CCRSI) reached midyear 2017 with pricing trends continuing to rise steadily across all U.S. regions and types of properties. The equal-weighted U.S. Composite Index rose by 1.4% in June, contributing to a second-quarter gain of 5%, while the value-weighted U.S. Composite Index advanced by a similar 1.3% for the month and by 4.1% for the quarter.

Driven by the second-quarter and recent monthly advances, the value-weighted U.S. composite index, reflecting larger asset sales common in core markets, has erased losses earlier in the year and has now expanded by 5.4% over the 12-month period ending in June 2017.

However, pricing momentum remains strongest in the lower end of the market in 2017. The equal-weighted U.S. Composite Index, reflecting the more numerous but lower-priced property sales typical of secondary and tertiary markets, increased 17.5% over the past year, the strongest 12-month period on record.

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Of particular note among property types is the U.S. Office Index, where stable fundamentals supported 11% growth, the only double-digit growth rate among the four major property sectors over the 12-month period. The four major CCRSI property-type indices all recorded price growth of an average 2% during the second quarter.

The Prime Markets Indices, dominated by transactions in the largest core coastal metros, have generally increased more slowly than the broader national property type indices, in keeping with the larger pricing index growth rates in non-core markets.

Continuing a trend of declining investment sales transaction activity that began last year and is likely to last through 2017, composite sale pair volume totaled $128.7 billion in the 12-month period ending in June, down 2.2% lower than the previous 12-month period.

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Steady pricing growth also increased across all four major U.S regions in the second quarter, with the regional indices advancing by in average of 1.9%. The Northeast Index saw the strongest growth over the 12-month period at 11.7% while the South Index advanced 9.9%. The West Index increased 8.2% and Midwest Index rose 7.4% during the same period.

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Among the property types, the U.S. Multifamily Index expanded 1.9% in the second quarter and rose 6.8% in the 12-month period ending in June as apartment vacancy rates remained below 6% nationally amid steady rent growth during the second quarter. However, the Prime Multifamily Metros Index posted a more modest gain of 3.5% in the 12-month period, an indication that the current concentration of luxury, urban projects under construction has increased competition for renters among existing institutional properties in core markets.

The U.S. Retail Index rose 2.4% in the second quarter and 9.2% in the 12-month period, in spite of ongoing store closures and stalled comparable-store growth by retailers such as Kmart and Sears, Macy's and JCPenney.

That said, the Prime Retail Metros Index advanced by a solid 7.6% over the past 12 months, further evidence that retailers are targeting their less-productive locations for closure, with strong retail locations remain in favor among tenants and investors.

Supply and demand remained in equilibrium in the U.S. industrial market, with vacancies hovering at a low for the current cycle and rent growth remaining above historical trends. The U.S. Industrial Index advanced 1.9% in the second quarter and 3.8% in the 12-month period, while core industrial markets remained in favor with investors, with the Prime Industrial Metros Index advancing by a strong 10% over the past year period.

The U.S. Hospitality Index increased 3.3% in the second quarter and 10.5% for the 12-month period. With the recent gains, the Hospitality Index has now surpassed its prior peak level reached in 2007 by 7.1% as national hotel occupancies remain well above last cycle's highs, supporting ongoing room rate and RevPAR growth for hotel operators.

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.
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