CCRSI Analysis for October Finds Investor Uncertainy Ahead of Elections, Seasonal Surge Fuels Gains In Investment Grade Pricing Index
After closing out the third quarter in strong fashion, pricing for commercial real estate saw very little change in October as concerns about the presidential election and impeding fiscal cliff likely put investors into a wait-and-see mode.
This month's CoStar Commercial Repeat Sale Indices (CCRSI) report revealed that the two broadest measures of aggregate pricing for commercial properties within the CCRSI, the Equal-Weighted U.S. Composite Index and the Value-Weighted U.S. Composite Index, saw very little change in October, dipping -0.1% and -0.8%, respectively.
Both indicators improved over quarter and year-ago levels, however, and recent pricing fluctuations likely signify a more cautious attitude among investors stemming from uncertainty over U.S. fiscal policy heading into 2013, according to the report and its principal author, Chief Research Officer Dr. Ruijue Peng.
The two measures both posted significant gains in September, with the equal-weighted index increasing 9.7% and the value-weighted index rising 8.2% on a year-over-year basis.
In the most recent month, however, the value-weighted index fell slightly in October. This index weights each repeat-sale by transaction size or value and therefore is heavily influenced by larger transactions.
But the pricing dip masks some differences below the surface. The multifamily component of the index posted strong gains for the month, indicating continued investor interest in that property type as a safe haven investment. That said, pricing for other property sectors served as a drag on the overall value-weighted index.
October prices were up 15.8% in a quarterly comparison of the U.S. Investment Grade Index, reflecting a seasonal pricing pattern observed over the last several years in which investment-grade transaction activity tends to spike during the last few months of the year.
In past years, the CCRSI Investment Grade index gave back some of those gains in the first quarter of the following year as deal volume slowed following the holidays, a pattern expected to repeat itself in 2013.
Meanwhile, liquidity indicators are improving. The average time that for-sale properties are spending on the market fell 5.5% from the peak in the second quarter of 2012. Similarly, the gap between initial asking and final sales price has closed by almost 2% from year-ago levels.
Fewer properties withdrawn from the market by discouraged sellers is another indication of improving investor sentiment, and the number of properties withdrawn from the market in October declined 7.4% from October 2011.
The number of distressed property trades in October fell to 14.8%, the lowest level witnessed since the first quarter of 2009. This reduction in distressed deal volume should result in higher, more consistent pricing -- and lead to enhanced market liquidity, giving lenders more confidence to finance deals.
This month's CCRSI report is based on 927 repeat sales in October and more than 100,000 repeat sales since 1996.
Editor's Note: For more pricing analysis, including third-quarter trends in the four major U.S. regions and prime markets by property type, see the full CCRSI release.