PRESS RELEASE DETAIL


Sep 30, 2010

CoStar Commercial Repeat-Sale Indices, October 2010

2010-10-06 2010 CoStar Commercial Repeat-Sale Indices, October 2010

Print Release (pdf)

OBSERVATIONS

  • General commercial real estate and the broad-based CoStar composite index for all commercial real estate reversed the positive trend reported in last month’s findings and came in at -3.48% and -1.38% respectively for the month of August. This up-and-down pattern has repeated itself for both investment grade and general real estate, with each of them often heading in opposite directions during the same month. Some of this is “noise” but it is also indicative of the market bouncing along a “rocky bottom,” as Dr. Karl Case recently described it for his Case-Shiller residential indices.
  • Repeat sales values for investment grade commercial property reversed their negative trend from July and moved positive again with a 3.73% climb in August. We continue to see a significant spread in cap rates and prices from the larger  property in prime core markets to the property in second- and third-tier broader markets. Even with tighter financing, there appears to be plenty of institutional and REIT capital oriented to the lower-risk core markets.
  • For the past three months, all three indices are negative at -3.92% for the broad general index, -3.24% for investment grade and -3.92% for the composite. For the past 12 months, all three indices are down approximately 10% to 11%.
  • Over the past two years, the general real estate index is down 24%, investment grade is down 32% and the composite is down 26%.
  • From the peak in February of 2008, the general real estate price index is down 27%, the investment grade down 34% and the composite index down 29%.
  • For comparison purposes we note that the Moody’s REAL Commercial Property Price (CPPI) released on Sept
    27th for July declined by 3.1% compared to our investment grade index, which declined 5.0%. Most likely we expect the Moody’s CPPI will be positive next month reversing the negative figure just reported.
  • One reason for the volatility of these indices discussed here is the proportion of distress sales, which are continuing to climb in absolute levels, although as a percentage of sales they have leveled since June. This volume of distressed sales, while certainly not a tsunami, is still significant especially among lodging and multifamily properties.
  • Sales transaction dollar volumes used to calculate the CoStar Commercial Repeat-Sale Indices were just slightly lower for investment grade and higher for general real estate. Overall transaction and dollar volumes are up.
  • The most active buyers continue to be REITs, both public and private, followed by developer/owners and individuals as well as investment managers including some hedge funds.

National Composite Monthly Indices
National Composite Monthly Indices 

Comparison Table for Current Release
(Ending 8/31/2010)
Comparison Table 

COMMENTARY ON DATA
The CCRSI September report is based on sales data through the end of August. In August, 559 sales pairs were recorded. Typically we receive additional sales data that adds a few percent to the numbers from 2 months ago, and up to 12% more data from one month ago. We revise the figures for the last three months but note that very little revision is necessary for data older than the last month, and even for those from the prior month our revisions are usually modest, never yet changing direction. Figures older than 3 months will not be revised. Dollar volumes for both the investment grade and general real estate indices were up approximately 20% in August compared to July.

Overall, there has been an upward trend in pair volume dating back to 2009. January 2009 appears to have been the low point in the downturn in terms of pair volume, when only 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.

In terms of the mix of pairs that have sold, August saw an increase in the proportion of repeat general commercial real estate properties trading hands. Investment grade sales amounted to only 25% of the total number of sales in August compared to 28% in July and 29% in June. In 2009 the average proportion of investment grade transactions of the total was 22.5% and in 2008 it was 26%. This compares to an average of 33% of sales pairs being investment grade in 2006 and 2007, before the start of the downturn.

Distress continues to be a significant factor in the index results. Since 2007, the ratio of distressed sales to overall sales has increased from approximately 1% to approximately 23% currently. Discounts on distressed property sales (REOs and short sales) compared to non-distressed sales are running an average of 40% for multifamily, 20% for office and industrial and 17% for retail property based on 2010 data to date.

Number of Repeat Sale Transactions
Number Repeat Sale Transactions 

Number of Distressed Commercial Real Estate Deals by Quarter
2005 through 2nd Quarter of 2010
Number of Distressed CRE Deals By Quarter 

Distressed Transactions as % of All Transactions through 2nd Quarter of 2010
Distressed Transactions As Percent of All 

Sub-Indices
2010-8 Sub-Indices 

Top 10 Metro Areas 

Release Schedule
 Release Schedule 

National Property Type Quarterly Indices through June of 2010
2010-8 National Property Type Quarterly Indices 

U.S. Regional Quarterly Indices through June of 2010
2010-8 US Regional Quarterly Indices 

Office Top 10 Metros Quarterly Indices
2010-8 Office Top 10 Metros 

Industrial Top 10 Metros Quarterly Indices
2010-8 Industrial Top 10 Metros 

Retail Top 10 Metros Quarterly Indices
2010-8 Retail Top 10 Metros 

Multifamily Top 10 Metros Quarterly Indices
2010-8 Multifamily Top 10 Metros 

U.S. West Property Type Quarterly Indices
2010-8 US West Property Type 

U.S. South Property Type Quarterly Indices
2010-8 US South Property Type 

U.S. Midwest Property Type Quarterly Indices
2010-8 US Midwest Property Type 

U.S. Northeast Property Type Quarterly Indices
2010-8 US Northeast Property Type 


CONTACT:
Media Relations

Vikki Kayne - 202-336-6996 - vkayne@costar.com
Analyst
Dr. Norm Miller - 858-678-4206 - nmiller@costar.com

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

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 interest in second tier and third tier markets and smaller scaled properties is picking up and those transactions are finally able and will continue to find financing and close; that we are approaching the bottom in terms of sales transactions or when we will see the bottom; that distressed sales will continue to increase overall or that they are peaking as a percentage of sales; that the upward trend in sales pair volume will continue; that the trends represented or implied by the indices will continue; and that the CCRSI will be released on the date and updated on the frequency set forth in the release. 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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