Mar 11, 2015
CRE Price Indices Start 2015 on a Strong Note with Solid Gains in January
Healthy Market Fundamentals across Property Types and Improving Liquidity Measures Support Broad Price Gains
CCRSI RELEASE – MARCH 2015
(With data through January 2015)
This month's CoStar Commercial Repeat Sale Indices (CCRSI) provides the market's first look at January 2015 commercial real estate pricing. Based on 1,154 repeat sales in January 2015 and more than 130,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.
CCRSI National Results Highlights
- COMPOSITE PRICE INDICES POST SOLID GAINS IN JANUARY 2015. Following a strong 2014, prices for commercial real estate (CRE) continued to climb in January 2015, supported by an expanding economy, strengthening market fundamentals and continued low interest rates. The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—each increased by 1.2% in January 2015, contributing to annual gains of more than 12% in each index.
- VALUE-WEIGHTED COMPOSITE INDEX REACHES NEW HIGH. Thanks to steady gains in recent months, the value-weighted U.S. Composite Index reached a record high in January 2015, and now stands 7.5% above its prerecession peak in 2007, reflecting strong competition among investors for large, high-quality commercial properties.
- EQUAL-WEIGHTED COMPOSITE INDEX RISES TO WITHIN 13.4% OF PRERECESSION HIGH. After beginning its recovery later in the current cycle, the equal-weighted U.S. Composite Index has continued to grow steadily in the 12 months since January 2014, although it remains 13.4% below its 2007 prerecession peak. The increase in the equal-weighted U.S. Composite Index, which is influenced by smaller deals, reflects the general movement of capital into secondary markets and property types, as investors search for higher yields after property pricing has escalated in core U.S. coastal markets. Within the equal-weighted U.S. Composite Index, the U.S. Investment Grade segment, which is weighted towards high-value properties, increased by 13.8% for the 12 months ended in January 2015 and is now within 9.5% of its prior peak level. The U.S. General Commercial segment, which tracks repeat sales of lower-tier properties, rose by 12.0% during the same period and has moved to within 14.4% of its prerecession high.
- PROPERTY SALES ACTIVITY RISES IN TANDEM WITH IMPROVING MARKET FUNDAMENTALS. Composite pair volume of $108 billion for the 12 months ended January 2015 marked a 30% increase from the prior 12-month period, indicating that investment flows into real estate remain strong. Repeat sale pair volume in the General Commercial segment rose 28.2% for the 12 months ended January 2015, nearly as strong as the 30.7% gain in the Investment Grade segment for the same period, as investment capital continues to move out on the risk spectrum.
- OTHER LIQUIDITY MEASURES SHOW STRENGTH. The sale price-to-asking-price ratio tightened by 2.4 percentage points in the 12-month period ended January 2015 to 91.2%—the highest ratio since the summer of 2008—as buyer and seller expectations grew closer. Additionally, the average time on market for for-sale properties fell 6.6% and the share of properties withdrawn from the market by discouraged sellers declined by 4.6 percentage points to 35.2% in the 12 months ended January 2015. Distress sales declined as well. The distress percentage of total observed sale pair counts fell to 9.3% for the 12 months ended January 2015 from 16.2% in the prior 12-month period.
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 (firstname.lastname@example.org).
For more information about the CCRSI Indices, including the full accompanying data set and research methodology, legal notices and disclaimer, please visit http://www.costargroup.com/costar-news/ccrsi.
About CoStar Group, Inc.
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 9 million registered members. Apartments.com 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 19 million unique monthly visitors in aggregate during January 2015. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S., Canada and Europe with a staff of over 2,400 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; and the risk that investor demand and commercial real estate pricing levels will not continue at the levels or with 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, 2014, which is filed with the SEC, including in the "Risk Factors" section of the filing, as well as the company'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 such statements, whether as a result of new information, future events or otherwise.