PRESS RELEASE DETAIL


Aug 04, 2010

CoStar Commercial Repeat-Sale Indices, August 2010

Print Release (pdf)

OBSERVATION AND THEMES

  • The commercial real estate market’s pricing has been a tale of two worlds with the largest metro markets attracting significant institutional capital and forcing prices upward over the first two quarters of 2010, while the broader market has continued to soften.
  • This divergence of the two worlds may soon change as we are now witnessing a pause and softening even within the investment or institutional grade primary markets.
  • Over the past ten months we have seen the overall CCRSI oscillate from positive to negative and back again, with preliminary July figures very likely to be down for the investment grade property markets. From May to June, the overall CCRSI was down 7.78% with the investment grade property declining by 4.83%, reversing previous positive movement.
  • The pause in some of the positive price trends we are now observing corresponds to renewed uncertainty in the US economy, persistent weakness in the housing market, as well as concerns surrounding the European economy. In addition, financial reform has slowed commercial mortgage markets as lenders are now in the process of interpreting capital requirements and "skin-in-the-game" provisions.
  • Many of the opportunity funds continue to seek out distressed properties, which are affecting the prices shown here, but the expectations of a tsunami of opportunities have not materialized and overall transaction volumes remain below normal.
  • Distressed sales as a percent of transaction volume are highest for hospitality at 35% followed by multifamily at 28%, office at 22%, retail at just under 20% and industrial at about 17%. These volumes appear to be stabilizing and the “extend and pretend” behavior of some lenders is likely to continue for the next several months.

National Composite Monthly Indices

costar-ccrsi-2010-0804-nat-comp-month.jpg

OBSERVATION OF SUB-INDICES

When all commercial real estate transactions are considered, every major property type appeared to soften in terms of prices in the last three months. However, the top-ten largest office markets posted a positive 6.2% price change as did the top-ten industrial markets which rose 2%. Retail prices suffered the most in the second quarter of 2010 with a drop of 12%, in part because the top ten retail markets had -17% loss in prices.

By region, Northeast and West suffered more a pullback than the South and Midwest, although both are coming off much higher peaks than South and Midwest. The only positive price trends out of 16 regional indices provided below were Midwest office at 5.7%, Northwest apartments at 3.5%, West industrial at 1.8% and South apartments at 1.0%.

Comparison Table

 

Commentary on data

The CCRSI July report is based on data through the end of June.  In June, 665 sales pairs were recorded, up significantly from May, during which 506 transactions occurred.  Overall, there has been an upward trend in pair volume going back to 2009.  February 2009 appears to have been the low point in the downturn in terms of pair volume, when 374 transactions were recorded.  Since then pair volume has increased overall, and beginning in November 2009, year-over-year changes in pair volume have been positive every single month.

In terms of the mix of pairs that have sold, June saw an increase in the proportion of repeat investment grade properties trading hands.  Investment grade sales amounted to 31% of the total number of sales in June, the highest level it has been going back to January 2008.  This indicates an increased mix of larger properties changing hands, which had been at decreased levels since the beginning of the recession.  Prior to June, 24% of sales pairs in 2010 were considered investment grade.  This compares to an average of 33% of sales pairs being investment grade in 2006 and 2007, before the start of the downturn.

Distress is also a factor in the mix of properties being traded.  Since 2007, the ratio of distressed sales to overall sales has gone from around 1% to above 23% currently.  Hospitality properties are seeing the highest ratio, with 35% of all sales occurring being distressed.  Multifamily properties are seeing the next highest level of distress at 28%, followed by office properties at 21%, retail properties at 18%, and industrial properties at 17%.

Number of Repeat Sale Transactions

Distressed Transactions as % of All Transactions

Sub-Indices

 

Release Schedule  

 

National Property Type Quarterly Indices 

 

U.S. Regional Quarterly Indices 

 

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

Contact : 

Media Relations
Vikki Kayne - 301-280-3858 - vkayne@costar.com 

Analyst
Dr. Norm Miller - 858-678-4206 - nmiller@costar.com 

For more information about CCRSI Indices, please visit www.costar.com/ccrsi/.

About CoStar Group, Inc.
CoStar Group, Inc. (Nasdaq:CSGP - News) is the number one provider of information, marketing and analytic services to commercial real estate professionals in the United States as well as the United Kingdom. CoStar's suite of services offers customers access via the Internet to the most comprehensive database of commercial real estate information throughout the U.S. as well as in the United Kingdom and France. Headquartered in Bethesda, Md., CoStar has approximately 1,500 people working for the company worldwide, including the largest professional research organization in the industry. 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, 2009, and CoStar's Form 10-Q for the quarter ended June 30, 2010, under the heading "Risk Factors." In addition to these statements, there can be no assurance that the divergence between the largest metro markets and the broader market will soon change due to the current pause and softening within the investment or institutional grade primary markets; that opportunity funds will continue to seek out distressed properties; that overall transaction volumes will remain below normal; that distressed sales as a percent of transaction volume are stabilizing and the “extend and pretend” behavior of some lenders will continue for the next several months; that the trends, including trends in pair volume, shown by the indices are indicative of future results; that pair volume will continue to increase and year-over-year changes in pair volume will continue to be positive; that there will continue to be an increased mix of larger properties changing hands; and that the ratio of distressed sales to overall sales will continue to increase.  All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update such statements.

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