CoStar Commercial Repeat-Sale Indices, March 2012 Release
(With data through January 2012)
Print Release (PDF)
This month's CoStar Commercial Repeat Sale Indices (CCRSI) provides the market's first look at January 2012 commercial real estate pricing. Based on 631 repeat sales in January and more than 100,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity. Also, in this release CoStar introduces three new metrics on market liquidity: average sale price-to-asking price ratio, average days on market and the sales withdrawal rate.
January 2012 National Results Highlights
- The monthly CCRSI National Composite Index increased by 1.5% in January 2012. The index is now 1.9% above the same period last year, reflecting the ongoing recovery in commercial real estate fundamentals.
- The National Composite Index has posted gains in eight of the last nine months (since April 2011) with an average monthly increase of 0.8%. This suggests that investor sentiment is improving and pricing growth is gaining consistency.
- While economic growth is becoming more entrenched, pricing for commercial real estate remains low relative to recent history. The National Composite Index ended January 2012 down 31.9% from its previous peak in August 2007.
- The CCRSI National Investment Grade Index increased 3.7% over year-ago levels, bolstered by strong investor interest in coastal markets and core multifamily assets.
- Liquidity in the commercial real estate markets is improving resulting in more property sales. The number of observed trades over the last 12 months increased by 23% over the prior 12-month period. Importantly for the pricing indices, the number of non-distressed sales observations increased at three times the rate of distressed sales observations over that period.
- The distress sale percentage of total observed transaction volume fell from 30.1% in January 2011 to 21.1% in January 2012. Rising occupancies have helped stabilize net operating income (NOI) for property owners across a number of markets, leading to a reduction in the number of forced sales. This trend has been a positive force for commercial real estate pricing.
- Consistent with the positive pricing trends, the gap between asking and actual sale prices closed by more than 1% over the past year. However, buyers and sellers still remain far apart based on historical levels. In January 2012, average sale price-to-asking price ratio was still 7.4% lower than the peak of the market in 2007.
- The average number of days on market (DOM) has grown from approximately 250 days in 2007 and remained at a record high of approximately 420 days over the three-month period of November 2011 – January 2012, suggesting a high level of inefficiency and friction in the process of matching potential buyers and sellers. This extended sales period intensifies uncertainty and puts downward pressure on asset prices. It also provides insight on why overall price recovery has lagged the recovery in transaction volume.
- The number of properties withdrawn from the sales market by discouraged sellers is leveling off. In January 2012, the number of properties withdrawn from the market declined 12.7% since the same period last year, another indication of improving investment sentiment.
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.
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 and analytic services. 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. 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 http://www.costar.com.