U.S. commercial real estate prices for top-tier properties rose for the second straight month in August, reinforcing signs of a turnaround taking shape in parts of a market that has struggled since 2022.
Smaller-dollar transaction prices, on the other hand, are still moving in the opposite direction, suggesting that investors are less confident in those properties.
The high-value deals signal some willingness on the part of investors to pay more, according to the latest CoStar Commercial Repeat-Sale Indices, a monthly report that tracks when previously sold properties trade hands again in a process called a repeat sale.
CCRSI's value-weighted index, more indicative of the expensive deals, rose 1.3% last month after years of pricing challenges following the pandemic's disruption of some commercial real estate demand patterns.
"These signs of larger deals getting done are happening at a time when prices appear to not only be stabilizing, but showing early indications of modest appreciation," said Chad Littell, national director of U.S. capital markets analytics for CoStar and author of the report. "For the industry as a whole, we haven't seen this emerging trend for several years and it is a welcomed change."
Notably, a quarter-to-quarter increase of 2.7% in the value-weighted index came in the summer months. Investors typically drive sales volume and values higher in November and December as buyers try to get their deals in before year-end.
Nonresidential property gains
The August price growth came from commercial, nonresidential property deals rising in value, while multifamily property values declined.
Nonresidential property prices have now risen for three consecutive months for a gain of 3.5%. Multifamily prices have fallen for six straight months for a decline of 3.7% over that period.
At the same time, small commercial property transactions saw declining values in August, extending a downward trend.
The equal-weighted index, which reflects the more numerous but lower-priced property sales, dropped 0.1%. These property deals have fallen for four of the past five months. However, the rate of decline is slowing from a 0.9% dip in April, suggesting that improved pricing could be around the corner.
Before the Federal Reserve started boosting borrowing rates in the spring of 2022, the equal-weighted index had increased for 10 consecutive months.
Repeat-sales volume jumped 3.6% from a year earlier to $10.7 billion in August. Over the past 12 months, transaction volume climbed 27.8% to $133.9 billion.
Forced sales from financial distress stayed minimal, according to the CCRSI report. About 2.7% of all repeat sales in August involved distressed properties, down from higher levels seen during previous market downturns.
The report is based on 1,479 property sales pairs in August and on more than 331,000 repeat sales since 1996.