Sep 28, 2016
Composite Price Indices Close Out Summer with Steady Gains
Continued Investor Interest Bolsters Property Price Gains despite Modest Slowdown in Transaction Volume From 2015
CCRSI RELEASE – SEPTEMBER 2016
(With data through AUGUST 2016)
This month's CoStar Commercial Repeat Sale Indices (CCRSI) provides the market's first look at commercial real estate pricing trends through August 2016. Based on 1,310 repeat sale pairs in August 2016 and more than 166,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.
CCRSI National Results Highlights
COMPOSITE PRICE INDICES CONTINUED UPWARD TRAJECTORY IN AUGUST. After overcoming relatively sluggish economic growth in the first half of the year, CRE prices remained resilient in August 2016 as the business cycle continues to advance through the seventh year of the current recovery cycle. Both of CCRSI’s two major composite price indices made steady gains during the month. The value-weighted U.S. Composite Index advanced by 1.1%, placing the index level 25.8% above its previous cyclical high. At the same time, the equal-weighted version of the U.S. Composite Index edged to within 0.5% of its prerecession peak after rising 0.3% in August 2016.
GROWTH WITHIN EQUAL-WEIGHTED INDEX LED BY GENERAL COMMERCIAL SEGMENT. The General Commercial segment, an index classification encompassing smaller priced properties typical of secondary and tertiary markets, rose 0.8% in August 2016 and 7.5% for the 12 months ending in August 2016, as more investors sought out property deals in non-prime markets. In contrast, the Investment-Grade Index, which consists of larger, higher quality properties in core markets, dipped 1.4% for the month, resulting in an annual gain of just 0.2% in the 12 months ending in August 2016.
STEADY LEASING ACTIVITY FUELING PRICE GROWTH. Net absorption across the three major commercial property types—office, retail, and industrial—is projected to total 710.7 million square feet for the 12-month period ending in September 2016, a 7.9% increase from the same period ending in September 2015. The steady yet modest leasing activity this cycle has been strong enough to sustain more than six consecutive years of expansion, yet mild enough to keep development largely in check in most areas in the country, which in turn has helped extend the pricing recovery across the entire building size and quality spectrum. The General Commercial segment had the strongest rate of growth in absorption, with total net absorption projected to grow 29.3% during the 12-month period ending in September 2016. Net absorption in the investment-grade segment is expected to be flat for the same period.
TRANSACTION VOLUME CONTINUED AT LOWER PACE THAN 2015. The total number of commercial property sales continued to moderate in August 2016 from its record pace in 2015. Composite pair volume of $79.3 billion year-to-date through August 2016 was a marginal 3.4% lower compared to the same period one year earlier. This may signal an increased level of caution among investors as the current U.S. business cycle continues to mature.
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, and 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 once, 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.
Gay Beach, Senior Director, Marketing Communications, CoStar Group (email@example.com).
For more information about the CCRSI Indices, including the full accompanying data set, research methodology, legal notices and disclaimer, please visit http://www.costargroup.com/costar-news/ccrsi.
About CoStar Group, Inc.
CoStar Group, Inc. (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. LoopNet is the most heavily trafficked commercial real estate marketplace online with more than 10 million registered members. Apartments.com, ApartmentFinder.com and ApartmentHomeLiving.com form the premier online apartment resource for renters seeking great apartment homes and provide property managers and owners a proven platform for marketing their properties. Through an exclusive partnership with Move, a subsidiary of News Corporation, Apartments.com is the exclusive provider of apartment community listings across Move’s family of websites, which include realtor.com®, doorsteps.com and move.com. CoStar Group’s websites attracted an average of nearly 25 million unique monthly visitors in aggregate in the second quarter of 2016. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe and Canada with a staff of approximately 2,700 worldwide, including the industry’s largest professional research organization. For more information, visit www.costargroup.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 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 will not continue or produce the results suggested by such trends, including the increases in net absorption; the risk that net absorption across the three major commercial property types and in the general commercial and investment-grade segments will not be as projected in this release; the risk that leasing activity will not continue at the levels reported or be strong enough to sustain further expansion; the risk that the pricing recovery across the entire building size and quality spectrum does not continue at the same rate; and the risk that transaction activity, investor demand, market supply, vacancy rates, absorption, liquidity and commercial real estate pricing levels and growth will not continue at the levels or with the trends indicated in this release. More information about potential factors that could cause results to differ materially from those anticipated 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, 2015, and CoStar’s Quarterly Report on Form 10-Q for the period ended June 30, 2016, each of which is filed with the SEC, including in the “Risk Factors” section of those filings, as well as CoStar’s other filings with the SEC available at the SEC’s website (www.sec.gov). All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.