Apr 15, 2011
Latest CoStar Commercial Repeat-Sale Analysis:
Pricing Performance Varies Significantly Between Different Regions and Property Types
Print Release (pdf)
We are seeing significant variations in pricing performance between different regions and property types. While national-level pricing data masks these critical underlying differences in pricing performance, they are readily apparent in CoStar’s CCRSI indices, which provide some of the most comprehensive benchmarks for tracking and analyzing price movements within commercial real estate. The significant variations in pricing are being driven both by investor preferences and significant differences in levels of distressed sales volume. Examples of significant variations in pricing performance include the following:
- Multifamily pricing in the Northeast at the end of 2010 stood within 4.8% of its peak level according to CoStar’s Northeast Multifamily pricing index.
- At the other end of the spectrum, CoStar’s West Office pricing index remains 43% below its peak-pricing level.
- On a composite level, the Northeast Composite pricing index also outperformed the rest of the country, standing 14.2% below its peak level, while the West Composite pricing index remained down 36.9% from its peak-pricing level.
- During the last twelve months, distressed sales comprised 14% of total commercial property sales in the major Northeast markets, while the level of distressed sales was a much higher 25% for major markets in the West region.
Peak-to-Fourth Quarter Price Changes
Regional Indices by Property Type
- At the national level, CoStar’s Investment Grade Commercial Repeat-Sale Index is up 6.8% compared with the same period last year, even after four consecutive months of declines, including a very slight 0.3% decline in February.
- The Investment Grade pair count (total number of repeat sales) is up 18.3% year over year, although the February pair count decreased 19% from January’s pair count total.
- CoStar’s General Grade Index is down 10.9% compared with the same period last year, although this pricing index has trended upward recently, posting two consecutive months of increases, including a strong 0.8% increase from January to February.
- The General Grade pair count for February 2011 is 10.7% higher than the pair count total in January and up 19.9% year over year.
- The Composite Index, which is an equal-weighted analysis repeat sale pricing index incorporating both the Investment Grade and General Grade indices and a reflection of the broad overall market, posted a slight increase in property value for the month of February of 0.6%, reflecting the strong monthly increase in the General Grade repeat sale index. The Composite Index is down 7.5% year over year.
National Composite Monthly Indices
Comparison Table for Current Release (Ending 2/28/2011)
COMMENTARY ON DATA
The CCRSI April 2011 report is based on data through the end of February 2011. In February of 2011, 539 Composite repeat pair sales were recorded compared to 451 in the same month of 2010. Note that this is an increase of 19%.
The Investment Grade pair count is up 18.3% over last year at this time while the General Grade pair count is up 19.9% percent. As previously mentioned, the pair counts for both will likely increase slightly when the additional closings are recorded.
Distress sales as a percentage of total February sale pairs account for approximately one in five sale pair transactions. Our analysis indicates that the amount of distressed commercial property has not peaked and will continue to affect the pricing indices provided here.
We provide one graph below showing the sales counts and a second showing dollar volume. Note that by transaction count General Grade Index sales as a percentage of total transaction counts accounted for 75% of the total sales transaction count in February, up from 68% in January. By volume in February properties in the Investment Grade Index represented 76% of total volume, down from 78% in January. The average deal size within Investment Grade was $10.8 million in February up marginally from January. The average dollar size for the General Grade Index was $1.1 million in January compared to $1.4 million in January.
ABOUT THE 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, there are a total of 32 sub-indices in the CoStar index family. The sub-indices include breakdowns by property sector (office, industrial, retail, multifamily 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 national composite index is produced on a monthly basis.
The CoStar indices are constructed using a repeat sales methodology, widely considered as the most accurate way to measure price changes for real estate. The repeat sales methodology measures the movement in the prices of commercial properties by collecting data on the actual sales prices that occur when a property sells. When a property is sold more than one time, a sale pair is created. The prices from the first and second sale are then used to calculate price movement for the property. By aggregating all the price changes from all of the sale pairs, a price index is created.
Number of Repeat-Sale Transactions by Count
Number of Repeat-Sale Transactions by Volume
National Property Type Quarterly Indices Through December of 2010
U.S. Regional Quarterly Indices Through December of 2010
Office Top 10 Metros Quarterly Indices
Industrial Top 10 Metros Quarterly Indices
Retail Top 10 Metros Quarterly Indices
Multifamily Top 10 Metros Quarterly Indices
U.S. West Property Type Quarterly Indices
U.S. South Property Type Quarterly Indices
U.S. Midwest Property Type Quarterly Indices
U.S. Northeast Property Type Quarterly Indices
Senior Real Estate Strategist
ABOUT COSTAR GROUP, INC.
CoStar Group (Nasdaq:CSGP) is commercial real estate's leading provider of information, analytic and marketing 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.
This news release includes "forward-looking statements" including, without limitation, statements regarding CoStar's expectations, beliefs, intentions or strategies regarding the future. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from these statements. More information about potential factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to, those stated in CoStar's filings from time to time with the Securities and Exchange Commission, including CoStar's Form 10-K for the year ended December 31, 2010, under the heading "Risk Factors." In addition to these statements, there can be no assurance that there will be continued downward pressure on general commercial property values; that the smaller property index is seeing the specter of bottom for the first time in the past three years; that pair counts will increase slightly as additional closings are recorded; that pair volume will run closer to 20% ahead of January 2010 as additional sales from that period are confirmed and added; that the amount of distressed commercial property will continue to affect the pricing indices provided in this release and that the trends represented or implied by the indices will continue. All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update such statements.