Commercial real estate pricing showed new signs of strain in April, with sharp declines in deal prices overcoming gains in other properties.
The major CoStar Commercial Repeat-Sale Indices posted declines, including the first drop in 11 months for the portion of the index heavily influenced by high-value trades in large markets. It also registered the first decline in five months for the part dominated by smaller deals and markets.
While both indices remained higher than a year earlier, the modest pullback signals the market’s recovery is losing a bit of steam after a long stretch of steady gains. Overall, values remain below their 2022 peaks, suggesting the recovery is ongoing but uneven and potentially entering a quieter phase.
“Seeing prices up 1% to 3% year over year, or anything similar, is historically what we'd expect to see in a stabilizing market. It's just not the boom numbers we saw in 2021,” said Chad Littell, national director of U.S. capital markets analytics for CoStar and author of the CCRSI report. “The commercial real estate recovery, after a downturn, is a multiyear process that accelerates and decelerates as it progresses through a broader trend higher. Markets rarely recover in a straight line.”
CoStar’s monthly CCRSI report tracks properties that have sold more than once, a methodology known as a repeat sale. The value-weighted U.S. Composite Index, which largely reflects larger-dollar trades common in core markets, fell 1.3% in April compared with March. Year-over-year values rose, however, sending the index up 3.5%.
Meanwhile, the equal-weighted U.S. Composite Index, reflecting the more numerous but lower-priced property sales typical of secondary and tertiary markets, fell 0.9% in April. The index has gained 1.2% in the past 12 months. The equal-weighted index is split into two sub-components: investment-grade and general commercial properties. Both indices declined in April over the prior month.
Top-tier property sales remain limited in number but large in scale, with outcomes often shaped by a handful of high-value deals. While most assets in this segment have appreciated over time, April results were more uneven, with a greater share of losses and some sizable declines pulling down average performance.
High-value price declines in April leaned heavily toward office assets that have generally seen flatter performance. Aggregated across April repeat office transactions, sale prices were $130.8 million below their prior trading values.
Biggest price decline and gain
The largest price decline came from the sale of Woodland Pointe, a 185,000-square-foot office complex in Herndon, Virginia. The property sold for $40.2 million, $59.8 million less than its previous sale price of $100 million in 2008 — a reminder that some assets are still repricing even as the broader market tries to stabilize.
The largest gain in the month came from the sale of Iconic on Alvarado, a 712-bed student housing property supporting San Diego State University. The property sold for $144.3 million, $46.2 million above its previous sale price of $98.1 million in 2016.
Overall, institutional-quality multifamily property sales came in $79.4 million higher than their previous prices.
The general commercial category that includes a much broader pool of smaller properties tends to show more consistent gains, with a higher proportion of transactions trading above their prior sale price and stronger average appreciation on a relative basis.
In April, the category's repeat retail sales came in $34.8 million higher than their previous sales prices — a 26% increase. Industrial property sales were $87.5 million higher, doubling previous prices.