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COSTAR COMPOSITE PRICE INDICES SHOW MOMENTUM SHIFT AS PRICING GROWTH ACCELERATES AT LOW-END OF COMMERCIAL PROPERTY MARKET

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HIGH-END PRICE GROWTH SLOWING AS INVESTORS EXPAND THEIR FOCUS TO MORE SECONDARY MARKETS AND PROPERTY TYPES

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JUNE 2012 CCRSI RELEASE
(With data through April 2012)   

Print Release (PDF)

This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at April 2012 commercial real estate pricing. Based on 774 repeat sales in April and more than 100,000 repeat sales since 1996, the CCRSI offers the broadest measure of U.S. commercial real estate repeat sales activity. Also in this release, CoStar Group includes analysis of our value-weighted composite index for the first time. CoStar has been tracking price changes on both an equal-weighted and a value-weighted basis since developing the CCRSI in 2010. Both indices are comprised of the same repeat property sale transactions. The different weighting schemes offer additional insight by analyzing price movements in different ways. An equal-weighted index is considered more relevant for measuring the performance of average properties, whereas a value-weighted index is better related to capital flows in the marketplace.

June 2012 National Results Highlights

  • APRIL PRICES MIXED: 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—posted a 1% gain and a 2.2% retreat, respectively, in April, although both advanced over year-ago levels. The equal-weighted index weighs each repeat-sale equally and is therefore heavily influenced by the more numerous smaller transactions, and the value-weighted index weighs each repeat-sale by transaction size or value and is therefore heavily influenced by larger transactions. 
  • VALUE-WEIGHTED GAINS STRONGER UNTIL RECENTLY: The value-weighted U.S. Composite Index’s pricing gains have been consistently stronger than its equal-weighted counterpart over the past two years. This suggests that pricing recovery has been progressing more rapidly at the top end of the market among the larger and more expensive assets. This mirrors the trend in the recovery of market fundamentals for commercial property, where demand for Four-Star and Five-Star office buildings, luxury apartments, and modern big-box warehouses has outpaced the broader market during that period. However, pricing trends suggest this may be shifting. (See next item.)
  • PRICING MOMENTUM SHIFTING: Despite the recent dominance of larger, more-expensive properties in pricing gains, momentum appears to be shifting to the broader market dominated by smaller, less-expensive properties. The value-weighted U.S. Composite Index’s 6.5% year-over-year gain in April slowed from its double-digit growth rate throughout 2011. At the same time, year-over-year growth in the equal-weighted U.S. Composite Index has generally accelerated over the past six months. This signifies that buyers have begun to expand beyond large, core properties for property acquisitions, driving up pricing at the low end of the market for the first time in this cycle. 
  • LIQUIDITY MEASURES IMPROVING: As commercial property prices rise, many measures of liquidity are also improving, starting with transaction volume. Over the past 12 months ended in April 2012, the observed sale-pair counts increased by 19% compared to the previous 12-month period ended in April 2011. This growth was slightly biased toward the Investment Grade segment of the market, which posted a 25% increase in observed pair counts over that period. 
  • U.S. ATTRACTING EUROPEAN INVESTORS: Transaction data indicate European investors have played a key role in improving liquidity. The share of commercial property purchases by European buyers in 2012 has more than tripled from 2011 levels, a signal that investors may be seeking safe havens in the midst of the Eurozone economic turmoil.
  • TIME-ON-MARKET DECREASES FOR FIRST TIME SINCE RECESSION: Sellers of commercial property appear to be finding the market more accommodating in 2012. Average time on market for for-sale properties has decreased this year for the first time since the start of the recession. Additionally, the gap between initial asking price and final sales price narrowed over the first four months of 2012 at its fastest rate since 2006. 
  • DISTRESS LEVELS CONTINUE DECLINING: The level of distress property sales has been generally declining as a percentage of property sales volume over the past 12 months. Only 24.3% of observed trades in April 2012 were distressed, 12.2% lower than the peak level observed in March 2011.

 

 

About the CoStar Commercial Repeat-Sale Indices

The CoStar Commercial Repeat-Sale Indices (CCRSI) are the most comprehensive and accurate measures of commercial real estate prices in the United States. In addition to the national Composite Index, national Investment Grade Index and national General Commercial Index, which we report monthly, we report quarterly on 30 sub-indices in the CoStar index family. The sub-indices include breakdowns by property sector (office, industrial, retail, multifamily, hospitality and land), by region of the country (Northeast, South, Midwest, West), by transaction size and quality (general commercial, investment grade), and by market size (composite index of the 10 largest metropolitan areas in the country).

The CoStar indices are constructed using a repeat sales methodology, widely considered the most accurate measure of price changes for real estate. This methodology measures the movement in the prices of commercial properties by collecting data on actual transaction prices. When a property is sold more than one time, a sales pair is created. The prices from the first and second sales are then used to calculate price movement for the property. The aggregated price changes from all of the sales pairs are used to create a price index.

 

 

 

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For more information about CCRSI Indices, including our legal notices and disclaimer, please visit http://www.costar.com/ccrsi.

About CoStar Group, Inc.

CoStar Group (Nasdaq:CSGP) is commercial real estate's leading provider of information, analytic services and marketing. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. Through LoopNet, the Company operates the most heavily trafficked commercial real estate marketplace online with more than 5.8 million registered members and 3.6 million unique monthly visitors. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe with a staff of approximately 1,500 worldwide, including the industry's largest professional research organization. For more information, visit www.costar.com.