After four consecutive months of positive price movement, CoStar's monthly National Composite Index of commercial real estate prices posted a slight decline of 0.5% in August 2011, driven mainly by softening pricing of high-end commercial properties, the segment most sensitive to the recent global financial market upheaval. This month's CoStar Commercial Repeat Sale Index ("CCRSI") provides the market's first look at August 2011 commercial real estate pricing and offers the broadest measure of commercial real estate repeat sales activity. This month's analysis is based on 839 repeat sale transactions in August 2011 and more than 100,000 repeat sale transactions since 1998.
August 2011 Highlights
- The General Commercial Index continued its upward trend over the last four months, and prices gained 0.1%. The monthly Investment Grade Index, on the other hand, declined 2.7% during the month of August, giving back its 1% gain in July 2011.
- The August price drop for the Investment Grade Index was accompanied by a slight decline in both distress and non-distress transactions, reflecting recent capital markets volatility and reduced CMBS lending.
- The steadiness in the General Commercial Grade Index was supported by increased sales of non-distressed properties. Overall distress sales as a percentage of total sales have declined gradually in the last six months, although the percentage of distress sales has fallen more rapidly in the General Commercial index than in the Investment Grade index.
- Commercial real estate market fundamentals remained stable through August. CoStar Group's analysis of third quarter 2011 data found that occupancy continued to improve across all commercial property types, although as yet without broad-based rent growth. This stability helped to mitigate the impact of economic uncertainty as observed in the movement of the General Commercial Index.
- A critical factor in future commercial real estate price movement to watch for in coming months is the degree to which current economic woes impact the availability of real estate financing, and whether they result in deteriorating market fundamentals.
CCRSI Index Results
- CoStar's Composite Commercial Repeat Sales Index decreased by 0.5% in August 2011. It is now 3.6% below the same period last year and 34.3% below its peak in August 2007.
- CoStar's General Grade Commercial Repeat Sales Index increased by 0.1% in August 2011 and is now 4.6% below its year-ago level and off 34.2% from its August 2007 peak.
- CoStar's Investment Grade Commercial Repeat Sales Index decreased 2.7% in August 2011 and is now 1.4% above the same period last year and 35.6% below its peak in August 2007.
National Monthly Indices
Comparison Table for Current Release (ending 8/31/2011)
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 28 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 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 sale pair is created. The prices from the first and second sale are then used to calculate price movement for the property. The aggregated price changes from all of the sale pairs are used to create a price index.
COMMENTARY ON DATA
The CCRSI October 2011 report is based on data through the end of August 2011. With a total of 839 sales pairs for the month, the transaction activities stayed at a level comparable to that in the years before the 2008–09 market crash. At the low point in the last downturn, only a total of 385 transactions were recorded in January 2009. Of the total 839 sales pairs, 705 were General Commercial deals and 134 were Investment Grade.
Total transaction dollar volume went down by 8% from its six-month average. The decline was concentrated in the Investment Grade transactions, where the volume fell by 10% from its six-month average. The General Commercial transaction volume stayed at par with its six-month average, and the average transaction size remained stable, at around $1.7 million.
Distress sales as a percentage of total sales continued to decline gradually from their peak of 35.4% in March 2011 and accounted for 26% (216 sale pairs) of all repeat sale transactions in August 2011. Even though distress sales gradually declined over the past six months, the overall level was still historically high, suggesting that distress continues to be a dominant factor of CRE pricing.
We provide three graphs below showing the sales counts, dollar volume, and distress sales as a percentage of total sales. Note that by transaction count, General Grade sales pairs accounted for 84% of the total sales transactions, a ratio that has been stable in the last 12 months.
Number of Repeat-Sale Transactions by Count
Number of Repeat-Sale Transactions by Dollar Volume
Distressed Sales as a Percentage of Total Sales
National Property Type Quarterly Indicies through June of 2011
U.S. Regional Quarterly Indicies through June of 2011
Office Top 10 Metros Quarterly Indicies
Industrial Top 10 Metros Quarterly Indicies
Retail Top 10 Metros Quarterly Indicies
Multifamily Top 10 Metros Quarterly Indicies
U.S. West Quarterly Indicies
U.S. South Quarterly Indicies
U.S. Midwest Quarterly Indicies
U.S. Northeast Quarterly Indicies
For more information about CCRSI Indices, including our legal notices and disclaimer, please visit http://www.costar.com/ccrsi.