CoStar Commercial Repeat-Sale Indices, December 2010
Print Release (pdf)
- Reversing two months of increasing prices, all three of CoStar’s “headline” Commercial Repeat-Sale Indices decreased in October, continuing the recent see-saw performance of commercial real estate pricing.
- CoStar’s National All Property Type Index, representing all commercial properties and the broadest industry measure of commercial real estate transaction pricing, slipped to its lowest point since the index peaked in February of 2008. While still decreasing, the rate decline has begun to slow considerably. Since June of 2009 the rate decline has been reduced by half.
- CoStar’s National All Property Type Index declined 3.88% during October, giving back its positive 3.07% gain in September.
- CoStar’s General commercial real estate pricing index, representing smaller transactions that comprise the largest number of real estate sales, experienced a larger monthly decline, 5.11%.
- CoStar’s Investment Grade commercial real estate pricing index, representing larger transactions that comprise the majority of the market on a dollar volume basis, experienced the smallest decline, 1.10%.
- The average deal size within the Investment Grade pricing index fell more than 63%, from over $23 million in September to $8.4 million in October.
- October’s dollar volume for repeat property sales declined to one-half of September’s dollar volume.
- The high volatility apparent in the market on a monthly basis is indicative of two prominent trends. First, monthly swings in pricing, sales volumes and average transaction size are common in markets experiencing a turn. Second, it reflects the tension in a market characterized by the majority of sales occurring at two ends of the spectrum -- distress sales at the bottom end of prices, and keen investor appetite, especially among REITs, for higher quality properties in core markets at the top end of the market. We expect to begin to see the extremes in range of prices replaced with more modest and less volatile monthly price trends when the proportion of distress sales begins to slowly reduce.
Quarterly Performance: The Haves and Have Nots
- The recovery in pricing of larger transactions continues to significantly outperform the recovery in pricing of smaller transactions for the year.
- The Investment Grade pricing index remains up 9.11% for the last 3 months, an extremely strong performance buoyed by the increased volume of larger-than-average deals and a large percentage of transactions that occurred in core markets in September.
- Conversely, the General real estate pricing index remains down 7.70% for the last 3 months.
Peak- To-Trough Performance: The Bigger They Are the Sooner and Harder They Fall
- The Investment Grade pricing index began to decline first, in September of 2007, while the General real estate pricing index didn’t begin to decline until March of 2008.
- From its peak values, the General real estate pricing index has fallen 30.34% while the Investment Grade Index has fallen 34.55% since its peak.
- Investment Grade sales volume, while lower for the month of October, has increased 14% over the last 3 months and is nearly 70% higher than one year ago.
- General real estate volumes have declined 6% over the last 3 months and increased a mere 7% from a year ago.
We expect the current see-saw pattern in pricing to continue as a result of the relative “trickle” of properties that are being allowed to come to market. Additionally, CoStar has reported increases in average asking rents and positive net absorption for several commercial property markets. However, net operating incomes are expected to continue to deteriorate for a time as rents on existing leases roll to lower market rents. At the same time, the lack of new supply could lead to strong rent growth in the future. Lastly, if interest rates begin to increase, we believe it will be a race between the rate of increase in net operating incomes and the rate of increase in interest rates.
National Composite Monthly Indices
Comparison Table for Current Release (Ending 10/31/2010)
COMMENTARY ON DATA
This CCRSI report is based on data through the end of October 2010. In October of 2010, 604 pair sales were recorded compared to 612 sales pairs from September. Information on a small number of additional sales is expected over the next few months. Typically we receive additional data that adds a few percent to the numbers from 2 months ago and up to 12% more data from one month ago. Based on this, it appears that transaction volumes are stable or slightly up. Overall, there has been a significant upward trend in pair volume going back to 2009. January 2009 appears to have been the low point in the downturn in terms of pair volume, when 376 transactions were recorded. Since then, pair dollar volume has increased overall and the average deal sizes for both general and investment grade have increased as a general trend.
We provide two graphs below, the first showing the sales counts and the second showing the sale volume weighted by the dollar size of the deals. Note that by transaction count the general sales accounted for 65% of the volume in October, while by dollar volume the general sales accounted for 23% of the total sales in October. We saw a spike in September sales volume, which was nearly double the sales volume observed in October. The average deal size within investment grade was over $23 million in September compared to $8.4 million in October and $11.7 million for the year to date.
Distress continues to be a significant factor in the index results with about one fifth of all sales transactions being distress sales.
Number of Repeat-Sale Transactions by Count
Number of Repeat-Sale Transactions by Volume
National Property Type Quarterly Indices Through October of 2010
U.S. Regional Quarterly Indices Through October of 2010
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
Senior Real Estate Strategist
Dr. Norm Miller
Vice President of Analytics
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 Washington, DC, 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.