Aug 13, 2014

Commercial Real Estate Prices Steadily Advance In Second Quarter

Pricing for Industrial and Retail Property Leads Major Property Types; Peak Pricing Capping Growth in Northeast, While All West Regional Indices Hit Double-Digit Gains

Pricing for Industrial and Retail Property Leads Major Property Types; Peak Pricing Capping Growth in Northeast, While All West Regional Indices Hit Double-Digit Gains

CCRSI RELEASE – August 2014
(With data through June 2014)   

Print Release (PDF)

Complete CCRSI data set accompanying this release


This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at June 2014 commercial real estate pricing. Based on 1,432 repeat sales in June 2014 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity. 

June 2014 CCRSI National Results Highlights

  • CCRSI COMPOSITE PRICE INDICES ADVANCED STEADILY IN SECOND QUARTER. Despite a modest pull-back in June 2014, CCRSI’s value-weighted U.S. Composite Index advanced 2.3% in the second quarter of 2014, and 9.7% for the 12-month period ending in June 2014. Reflecting the impact of larger, core-like property sales, the value-weighted U.S. Composite Index is now in line with its prerecession highs reached in 2007. The equal-weighted U.S. Composite Index, which tracks smaller, more numerous property trades typical of those in secondary markets, is now beginning to catch up with its value-weighted counterpart. It advanced 2.4% in the second quarter and 10% for the 12 months ending in June 2014.
  • PRICE GAINS DISTRIBUTED ACROSS HIGH AND LOW ENDS OF THE MARKET. Within the equal-weighted U.S. Composite Index, both the Investment Grade and General Commercial segments increased by 2.4% in the second quarter of 2014, and by 9% and 10.3%, respectively, for the 12 months ending in June 2014. The Investment Grade segment, which is weighted toward high-value properties, has now advanced 41% from its trough in 2009.  The General Commercial segment, which is weighted toward smaller, lower-value properties, did not begin its recovery until nearly two years later but has gained 24.1% from its 2011 cyclical low.
  • INDUSTRIAL AND RETAIL LEAD MAJOR PROPERTY TYPES IN ANNUAL PRICING GAINS. All commercial property sectors saw pricing increase over the second quarter and 12 months ending June 2014, demonstrating the breadth of the recovery in CRE prices. Pricing growth was led by the U.S. Industrial Index which advanced 11.5% for the 12 months ending in June 2014, followed closely by the U.S. Retail index, which increased 10.5% in that period. Pricing trends broadly match improved market fundamentals for these two sectors.    
  • HIGH CONCENTRATION OF CORE, GATEWAY MARKETS BOLSTERS PRICE GAINS IN NORTHEAST AND WEST REGIONS.  Strong investor interest in such core markets as New York, Boston, Los Angeles and San Francisco supported exceptional price growth for commercial property in the Northeast and West regions.  Several CCRSI indices, including the Northeast Multifamily, Northeast Retail, and West Multifamily, surpassed their prior peak pricing levels. Overall, the Northeast and West Composite Indices have recovered to within 7% and 17% of their prerecession peak levels, respectively.  Meanwhile, investor interest is turning to the South and Midwest, where prices remain more than 20% below peak levels reached in the last cycle.
  • PROPERTY SALES ACTIVITY ESCALATES. Boosted by a strong second quarter, repeat sale transaction volume reached nearly $39.3 billion in the first half of 2014 , an increase of 14.5% from the first half of 2013, and roughly on a par with the first half-year totals reached in 2006-07. Repeat-sale pair volume increased 8.8% in the Investment Grade segment and 27.2% in the General Commercial in the first half of 2014 over the same period one year earlier.  Meanwhile, only 8.7% of properties are selling at distressed pricing as of the second quarter of 2014 — the lowest distress sales rate since the fourth quarter of 2008.



Quarterly CCRSI Property Type Highlights 

  • INVESTORS VENTURING FURTHER OUT ON THE RISK SPECTRUM. Broad gains across all of the property sectors over the 12 months ending in June 2014 demonstrate the extent of the recovery in commercial real estate prices. Pricing in the overall market has increased more rapidly than in the Prime Markets Indices over the last year, with the broader Office Index gaining 7% for the 12 months ending in June 2014, while the Prime Office Metros Index advanced by 2.7% in the same time period. This can be seen as a sign that higher prices may be pushing investors out of primary markets as strengthening market fundamentals provide increased confidence to invest in more non-prime markets. 
  • WIDE PRICING VARIATION CONTINUES TO EXIST AMONG MARKETS. Contributing to this shift in investment focus, average sales prices are above the 2006 and 2007 averages in New York, San Francisco, Houston and Denver. In contrast, some of the largest discounts from 2006 and 2007 office pricing are still available in Portland, Orange County, Phoenix and the East Bay.  
  • INDUSTRIAL PROPERTY LEADS THE WAY. The Industrial Index posted the most impressive annual gain, of 11.5%, for the 12 months ending in June 2014, reflecting improvements in market fundamentals as vacancy rates sunk to a cyclical low in the second quarter of 2014. The Prime Industrial Markets Index advanced by a solid 6.9% for the trailing 12-month period in June 2014 as investors acquired industrial property across the size and quality spectrum.  
  • INVESTOR INTEREST IN RETAIL PROPERTY CONTINEUS TO ACCELERATE. The CCRSI Retail Index increased by 10.5% over the last 12 months as pricing gains complemented the solid improvement in market fundamentals. All retail property subtypes saw vacancy compression over the last several quarters, even previously struggling neighborhood and strip centers. The overall retail market moderately outperformed the Prime Retail Metros Index, which expanded by 6.3% for the year ending in the second quarter of 2014, indicating that investors are branching out beyond gateway markets. 
  • MULTIFAMILY PROPERTY APPROACHING PEAK PRICING LEVELS. Annual gains of 10.3% for 12-month period ending in June 2014 propelled the Multifamily Index to within 4% of its prerecession peak.  Meanwhile, the Prime Multifamily Metros Index has already surpassed its previous high-water mark in 2007, by 10.4% in the second quarter 2014.  Supply is now flowing quickly in many markets as construction levels increase, which will cause vacancies to increase from cyclical lows.  In an environment of softening fundamentals and pricing that is at or above peak levels, signs of a deceleration in pricing appeared in recent quarters.  The Prime Multifamily Metros Index has grown 7.1% in the last 12 months, compared with average gains of 16.6% in the prior two annual periods. 
  • PRICE GROWTH FOR HOTEL PROPERTIES MODERATES. As hotel occupancy has leveled off over the past couple of years following a sharp post-recession bounce back, price growth for hotel property has also moderated.  After posting double-digit gains in 2012, the Hotel Index increased by 4.6% for the year ending in June 2014. While the Hotel Index has increased 24.1% from its trough in 2009, it remains 33% below its prior peak.  
  • LAND INDEX CONTINUES SLOW RECOVERY. Driven in large part by demand for multifamily development sites and a resurgent single-family market, the CCRSI Land Index made moderate gains of 9.7% in the second quarter of 2014 from its cyclical low in 2012.

Quarterly CCRSI Regional Highlights 

  • NORTHEAST REMAINS BEST PERFORMING REGION. Thanks to its concentration of top-tier markets, which have been a magnet for investment early in the cycle, the Northeast Composite Index continued to outperform.  Pricing in the second quarter of 2014 has recovered to within 7% of the prior peak in 2008, largely attributed to the strong rebound in the Northeast Multifamily and Retail Indices, which have both soared past their prerecession peaks, by 12.4% and 2.2%, respectively.  As the recovery matures, pricing gains have also slowed, however.  Over the last 12 months ending in June 2014, the Northeast Composite Index growth has slowed to 4.1%, from 9.9% in the same time in the prior year.  
  • WEST REMAINS A CLOSE SECOND. The West Composite Index has recovered to within 17% of its previous peak reached in 2007, the second-strongest price recovery after the Northeast region.  Over the previous 12 months since June 2014, all four major property indices in the West posted double-digit price growth, the only region to make that claim.  The West Multifamily Index has been the strongest performer. After gaining 12.2% over the last 12 months, it is now 1.4% above its prerecession peak. Rent increases in tech-driven markets, including Seattle, San Francisco and San Jose, have supported recent price growth, particularly in the office and multifamily segments.
  • OFFICE SECTOR HOLDING BACK SOUTH REGION. The South Composite Index increased by 10% for the 12 months ending in the second quarter of 2014.  Strong demographics and robust population growth have shored up performance in the South Industrial, Retail, and Multifamily indices over the last 12 months, which all grew at a double-digit pace. The South Office Index turned in the weakest performance, with annual growth of 5.7% for the 12 months ending in the second quarter of 2014.  The overall South Index remains 21.2% below its prerecession peak level.
  • MIDWEST LATE OUT OF THE GATE. The Midwest has lagged behind the other regions in the recovery, with most property type indices bottoming out in 2012, nearly two years later than those in the Northeast or West regions. Demand growth for commercial property is generally more subdued in this region, but the Midwest can offer stability and appreciably higher yields.  As capital has spread out to secondary and tertiary markets over the last year in search of yield, markets including Chicago, Kansas City and Columbus have seen a surge in investment and price growth. For the 12 months ending in the second quarter of 2014, the Midwest Composite Index increased by 10.3%, with the strongest growth in the industrial and multifamily sectors, of 12% and 11.1%, respectively.  The overall Midwest Index remains more than 27% below its prerecession peak.  
























About the CoStar Commercial Repeat-Sale Indices

The CoStar Commercial Repeat-Sale Indices (CCRSI) is the most comprehensive and accurate measure of commercial real estate prices in the United States. In addition to the national Composite Index (presented in both equal-weighted and value-weighted versions), 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 prime market 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.






Mark A. Klionsky, Senior Vice President-Marketing (

For more information about the CCRSI Indices, including the full accompanying data set and research methodology, please visit


CoStar Group (Nasdaq:CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. 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 8.7 million registered members. is a premier online apartment resource for renters that matches apartment seekers with great apartment homes and provides property managers and owners a proven platform for marketing their properties. CoStar operates websites with over 16 million unique monthly visitors in aggregate during second quarter of 2014. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S., Canada and Europe with a staff of over 2,300 worldwide, 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 risk that the trends represented or implied by the indices, including higher prices, strengthening market fundamentals and increased multifamily supply, will not continue or produce the results suggested by such trends, such as pushing investors out of primary markets, increasing investors’ confidence to invest in more non-prime markets and increasing vacancies of multifamily properties, respectively; and the risk that investor demand and commercial real estate pricing levels will not continue at the levels or to follow the trends indicated in this 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 in CoStar's Annual Report on Form 10-K for the year ended December 31, 2013, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, each of which is filed with the SEC, including in the "Risk Factors" section of those filings, as well as the company's other filings with the SEC available at the SEC's website ( 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.