Strong Fundamentals and Global Capital Flows Support Broad CRE Price Growth Through November 2015
U.S. commercial real estate continued to enjoy a banner year in November as 2015, with market fundamentals reflecting healthy levels of absorption and continued rental gains during the month supported broad price gains, even as construction levels for office, retail and warehouse space have begun to slowly increase.
The value-weighted and the equal-weighted versions of the U.S. Composite Index, which comprise the two broadest measures of aggregate pricing for commercial properties within CoStar's commercial repeat-sale index (CCRSI), each increased by 0.9% in November 2015, contributing to annual gains in the indices of 12.2% and 11.7%, respectively, for the 12 months ended November 2015.
The complete CoStar Commercial Repeat-Sale Index report for January 2016 is available here.
The CCRSI is released each month, providing insight and analysis on pricing trends for commercial real estate.
Meanwhile total property sales volume remains on a record pace for the year. Composite sales-pair volume of $110.2 billion from the start of 2015 through November 2015 is 25% higher than for the same period in 2014, strongly suggesting that 2015 will handily eclipse last year’s record sales volume for the CCRSI.
Along with record transaction volume, pricing for commercial property reached new highs as well, especially for high-quality assets in core markets. In November 2015, the value-weighted U.S. Composite Index soared 18.4% above its 2007 prior peak. The equal-weighted U.S. Composite Index, which reflects pricing for smaller properties in second-tier locations, also posted solid growth but remained 4% below its prior peak due to the delayed start to its recovery in comparison with the value-weighted version of the Composite Index.
Similarly, within CCRSI’s equal-weighted U.S. Composite Index, the Investment-Grade segment, which captures the performance of high-quality properties, moved to within 1% of its prior peak, while the General Commercial Index remains 4.6% off its previous high water mark.
Net absorption across the three major commercial property types - office, retail, and industrial - totaled 649.2 million square feet for the full year of 2015, a 15.5% increase from 2014, and marked the highest calendar year annual total since 2007.
Higher-quality, investment-grade properties saw the lion's share of leasing activity in 2015. Net absorption in CCRSI's investment-grade segment increased 23% from 2014, while net absorption in the general commercial segment remained flat in 2015.
The investment-grade segment in the office and industrial sectors turned in particularly strong performances, averaging net absorption of 0.5% and 0.4% of total inventory, respectively, in 2015. The retail sector, even with muted inventory additions, averaged a more modest 0.2% net absorption of total inventory in 2015.
Monthly CCRSI Results Data Through November 2015
|% Change||1 Month Earlier||1 Quarter Earlier||1 Year Earlier||Trough to Current
|Value-Weighted U.S. Composite Index||0.9%||3.3 %||12.2%||88.9%
|Equal-Weighted U.S. Composite Index||0.9%||2.5%||11.7%||50.2%
|U.S. Investment-Grade Index||0.9%||2.4%||10.5%||64.5%
|U.S. General Commercial Index||0.9%||2.6%||9.1%||49.3%
Market Fundamentals Data Through December 2015
Annual Net Absorption (In Millions Of Square Feet)
|General Commercial ||98.8||122.2||182.3||182.4