May 16, 2012

Commercial Property Pricing Recovery Continues Despite Seasonal Volatility

This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at commercial real estate pricing through March 2012. Based on 885 repeat property sales in March and more than 100,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity. Also, this release includes First Quarter 2012 sub-index results by property type and by region.

(With data through March 2012)   

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This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at commercial real estate pricing through March 2012. Based on 885 repeat property sales in March and more than 100,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity. Also, this release includes First Quarter 2012 sub-index results by property type and by region.

May 2012 National Results Highlights

  • PRICES RECOVER TO MID-2003 LEVELS: The U.S. Composite Index ended the first quarter of 2012 4.3% above the same period in 2011. Despite commercial property prices remaining generally flat in March, prices have recovered to mid-2003 levels, but are still 34.5% lower than the peak levels in 2007.
  • NON-CORE PROPERTIES GAIN: Improving market fundamentals and liquidity continue to bolster the recovery of non-core properties. The U.S. General Commercial Index continued its upward trend and gained 3.7% since it bottomed a year ago. Unlike the pricing volatility seen in the Investment Grade Index, the recovery of General Commercial Index has been slow but steady.
  • SEASONALITY CONTRIBUTES TO INVESTMENT-GRADE VOLATILITY: Seasonality continues to be most evident in the investment grade segment of the market. In each of the past three years, the Investment Grade Index has experienced a significant first quarter pricing decline following a proportionate pricing increase in the fourth quarter of the previous year. These year-end pricing spikes have been consistent with elevated transaction volume as investors rush to close deals prior to January 1, while the first-quarter declines have coincided with a return to normal trading activity. Macroeconomic shocks in 2010, 2011 and 2012 have also contributed to the recent ‘Spring Slumps’ in pricing. This volatility is a normal and expected occurrence, and should not be interpreted as a regression in real estate prices. Despite the most recent decline, the Investment Grade Index remains 8.2% above year-ago levels.
  • SALES VOLUME UP YEAR-OVER-YEAR: An active March capped off a busy quarter in the investment markets. Composite pair volume in the first quarter totaled $12.3 billion, much lower than the fourth quarter of 2011’s total (as expected), but 38.7% above the first quarter of 2011’s total. Both investment grade and general commercial segments were heavily traded in March. Total investment volume in each exceeded their two-year monthly averages by wide margins, reflecting ongoing improvement in investor sentiment.
  • DISTRESS LEVELS DECLINING: Distress has been generally declining as a percentage of property sales volume over the past 12 months. Only 23.5% of observed trades in March were distressed, a level notably lower than the 28.6% observed over the past three years. An elevated level of distressed property sales is expected to remain for several more years, but rising rents and occupancies should keep its share of the total sales volume trending down.


Quarterly CCRSI Property Type Results

  • The seasonal first-quarter pricing slump was observed across property types with the exception of hospitality. Despite a pricing reversal in the first quarter, the multifamily sector continues to lead the recovery among property types in terms of timing and magnitude. Since reaching the bottom in the second quarter of 2010, multifamily property prices have recovered to 2003 levels, but are still 28.2% lower than the peak in 2007. This sector has had the strongest rent recovery to date, prompting investors to bid up pricing in anticipation of future NOI gains.
  • The Office Index has demonstrated sustained pricing growth over the past year, mirroring the sector’s ongoing improvements in fundamentals. Office prices are up 13.1% over year-ago levels, the largest annual increase among the five primary property types.
  • The Hospitality Index recorded the largest quarterly pricing increase in the first quarter of 2012. Hospitality has been slow to recover since suffering the steepest cumulative price losses among the primary sectors. However, its short-lease period has allowed occupancy and rent gains to translate quickly into NOI growth, which in turn has boosted recent investment volume and pricing. 
  • The Industrial Index advanced marginally above the trough of the pricing cycle, but total gains remain light relative to the office and multifamily sectors. The recovery of industrial property pricing has been dampened as the European recession has reduced U.S. exports. To date, most industrial pricing growth has been concentrated in the U.S. national distribution markets, which have captured an outsized portion of overall absorption. Demand is expected to branch out into smaller regional and local distribution markets in 2012, which will likely give the Industrial Index a broader foundation for gains in the coming quarters. 
  • The retail property sector remains challenged due to lackluster consumer spending and the availability of a large amount of empty space to fill by the few retailers that are expanding. As a result, the Retail Index has seen no discernible pricing gains yet. However, pricing losses have fallen to minimal amounts on a year-over-year basis, suggesting that the Retail Index may be nearing an inflection point.
  • Land prices continue to erode, reflecting the general aversion to development at this time.



Quarterly CCRSI Regional Results 

  • Among the four major U.S. regions, the Northeast Composite Index remains at the forefront of the pricing recovery despite a seasonal reversal in the first quarter. This region has been bolstered by exceptional pricing growth in the multifamily sector – the Northeast Multifamily Index is the only index in which the current level has surpassed the previous peak.
  • The industrial and retail indices continue to decline in most regions with the exception of the South. Local distribution demand and retail sales growth has been boosted by outsized population growth in this region, accounting for a portion of these pricing gains.
  • The West, South, and Midwest composite indices remain near the trough of the pricing cycle, but all have posted positive year-over-year pricing gains as of the first quarter of 2012. In the West and Midwest regions, the multifamily sector has undergone the most dynamic pricing recovery to date. The office sector has had the strongest pricing recovery in the South region.


Quarterly CCRSI Top Ten Markets Results

  • The Industrial Top 10 Largest Metros Index posted the largest increase among all property type indices in the first quarter of 2012, advancing by 5.2%. These pricing gains are consistent with the outsized demand growth for national distribution centers, which tends to be concentrated in the larger metros. By contrast, the U.S. Industrial Index, which covers the U.S. as a whole, was flat in the first quarter.
  • The early pricing recovery seen in the Top 10 office and multifamily indices has faded. In the first quarter, pricing growth in the composite indices overtook their respective Top 10 indices on a year-over-year basis. This shift suggests that investors are moving beyond the core markets into secondary and tertiary markets in search of higher yields and better capital value growth potential.
  • The retail segment continues to bifurcate by class. The Retail Top 10 Metros index has bunched around the same pricing level since September 2010, supported by high transaction volume in these large metros. In contrast, the overall retail index continues to trend down as non-core retail markets remained most challenged.


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 30 sub-indices in the CoStar index family. The sub-indices include breakdowns by property sector (office, industrial, retail, multifamily, hospitality 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 sales pair is created. The prices from the first and second sales are then used to calculate price movement for the property. The aggregated price changes from all of the sales pairs are used to create a price index.





For more information about CCRSI Indices, including our legal notices and disclaimer, please visit

About CoStar Group, Inc.

CoStar Group (NASDAQ: CSGP) is commercial real estate's leading provider of information, analytics services and marketing. 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. Through LoopNet, the Company operates the most heavily trafficked commercial real estate marketplace online with more than 5.8 million registered members and 3.6 million unique monthly visitors. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe including the industry's largest professional research organization. For more information, visit

​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 based upon current beliefs and are subject to many risks and uncertainties that could cause actual results to differ materially from these statements. The following factors, among others, could cause or contribute to such differences:  the possibility that market fundamentals will not continue to improve; the possibility that improving market fundamentals and liquidity do not continue to bolster the recovery of non-core properties; the risk that the level of distressed property sales and rising rents and occupancies will not be as stated in this release; the risk that demand in smaller regional and local distribution markets in 2012 will not be as stated in this release and, therefore that the Industrial Index may not have a broader foundation for gains in the coming quarters; the possibility that the Retail Index is not actually nearing an inflection point; the risk that investor demand and commercial real estate pricing levels will not continue at the levels or with the trends indicated in this release; the risk that the trends represented or implied by the indices will not continue; and the possibility that the CCRSI is not released on the date and updated on the frequency set forth in the release.  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 Annual Report on Form 10-K for the year ended December 31, 2011, and CoStar's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, including in the "Risk Factors" Section of each of these filings.  All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update such statements, whether as a result of new information, future events or otherwise.