Nov 13, 2015
CRE Prices Enjoy Ideal Conditions For Growth In Third Quarter
Multifamily Continued To Outperform; All Northeast Regional Indices Now Above Prior Peak Levels
Multifamily continued to outperform; all Northeast regional indices now above prior peak levels
CCRSI RELEASE – NOVEMBER 2015
(With data through September 2015)
This month's CoStar Commercial Repeat Sale Indices (CCRSI) provides the market's first look at September 2015 commercial real estate pricing. Based on 1,388 repeat sales in September 2015 and more than 145,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.
U.S. Composite Indices: Equal- And Value-Weighted
Data Through September 2015
U.S. Equal-Weighted Indices By Market Segment, Data Through September 2015
U.S. Pair Count & Volume, Data Through September 2015
U.S. Distress Sale Pairs Percentage, Data Through September 2015
U.S. Primary Property Type Quarterly Indices – Equal-Weighted
Data Through September 2015
U.S. Land And Hospitality Quarterly Indices – Equal-Weighted
Data Through September 2015
U.S. Regional Type Quarterly Indices – Equal-Weighted
Data Through September 2015
CCRSI National Results Highlights
- ideal conditions for CRE price growth CONTINUED In Q3 2015. Steady employment growth, low interest rates, and the global uncertainty that has pushed capital into ‘safe-haven’ investments helped drive continued investment and price growth in U.S. real estate through the third quarter of 2015. The two broadest measures of pricing within the CCRSI—the equal-weighted U.S. Composite Index and the value-weighted U.S. Composite Index—advanced by 2.6% and 2.9%, respectively, in the third quarter of 2015, which contributed to gains of 11.2% and 12.2%, respectively, for the 12 months ended September 2015.
- GENERAL COMMERCIAL SEGMENT LED GROWTH IN EQUAL-WEIGHTED INDEX. The price recovery evident in the General Commercial segment, which encompassed smaller property sales more typical of secondary and tertiary markets, has generally lagged in the recovery relative to the Investment-Grade Index. However, improving fundamentals and higher yields are driving increasing investment in this lower-end market segment. The General Commercial Index advanced 2.9% in the third quarter of 2015 and 11.5% for the 12 months ended September 2015, pushing it to within 6.5% of its previous peak. The Investment-Grade Index, which has already risen to within 2% of its prior peak, posted more modest growth of 1.4% in the third quarter of 2015 and 9.6% for the 12 months ended September 2015.
- PRicing in Northeast region has fully recovered. Continued strong investor demand in established, core markets pushed the Northeast Composite Index up 12.6% in the 12 months ended September 2015, the fastest growth rate in CCRSI’s four regional indices. All four property type indices within the Northeast region—Multifamily, Office, Retail and Industrial—surpassed their prior peak levels as of September 2015.
- MULTIFAMILY INDEX CONTINUES TO BE A TOP PERFORMER. Despite already-elevated pricing and heavy construction, strong demand for rental apartments nationally continued to support multifamily price growth in the third quarter of 2015. The Multifamily Index increased 3% in the third quarter of 2015 and 12.4% for the 12 months ended September 2015, propelling the index 15% above its prior peak.
- HOSPITALITY AND LAND INDICES POSTED LARGEST GAINS AMONG SIX PROPERTY SECTOR INDICES. Despite suffering the largest peak-to-trough declines in the last downturn of any of the six property types in the CCRSI, the Hospitality and Land indices both made strong gains in the last 12 months. The U.S. Land Index increased 17.8% for the year ended September 2015, rising to 18.1% below its prerecession high, while the U.S. Hospitality Index surged 13% during the same period, moving to within 11% of its previous high.
- REAL ESTATE INVESTORS CONTINUE ROBUST TRANSACTION ACTIVITY. Composite pair sales volume of nearly $91 billion in the first three quarters of 2015 grew 32.8% compared with the first three quarters of 2014, and put 2015 on track to become the strongest year on record for transaction volume in the CCRSI. The share of distressed property sales further declined to 6.4% in the first three quarters of 2015, down from a recessionary peak of nearly 33%, and the lowest rate on record since August of 2008.
Quarterly CCRSI Property Type Results
- MULTIFAMILY INDEX GROWTH CONTINUED TO SURGE IN Q3 2015. Despite already-elevated pricing and heavy construction, demand for rental apartments nationally continued to support some of the strongest price growth among the major property types in the third quarter of 2015. Development activity has soared but leasing remained equally robust, driven by steady population and employment growth, especially in the prime-renting cohort of 25–34-year-olds, while homeownership rates remained near cyclical lows. The Multifamily Index advanced 3% in the third quarter of 2015, contributing to annualized gains of 12.4% in the 12-month period ended September 2015 and now stands 15.5% above its 2007 high. The Prime Multifamily Metros Index led all repeat sale indices in the CCRSI throughout the recovery and has not yet shown consistent signs of slowing. The Prime Multifamily Metros Index increased 15.4% in the 12-month period ended September 2015 and is now 37.2% above its previous peak in 2007.
- U.S. RETAIL MARKET REMAINS BIFURCATED. Price growth for retail properties has surged, along with rents, in urban areas that are undersupplied with well located, high quality store space, despite a modest uptick in construction. However, in less-dense suburbs still struggling from a chronic oversupply of store space, rents and pricing continue to lag. This trend is illustrated in the recent performance of the CCRSI retail indices. The Prime Retail Metros Index, which reflects property sales activity in the denser, urban trade areas found in core coastal markets, climbed 11.4% in the 12 months ended September 2015 and is now 12.9% above its prior peak. It is also the only other prime metros index to regain its prior peak pricing outside of multifamily. Meanwhile, the overall U.S. Retail Index increased 2.3% in the third quarter of 2015 and 10% in the 12 months ended September 2015, solid growth, but still the slowest among the major property types over those time periods.
- STEADY GAINS SEEN IN OFFICE SECTOR. The core gateway markets continued to do well during the third quarter of 2015. In addition, former housing-bust markets such as Atlanta and Miami, which have so far lagged in the recovery, also saw some of the most pronounced improvements in market fundamentals and price growth in the last year. The national U.S. Office Index increased 2.7% in the third quarter of 2015 and 10.3% in the 12-month period ended September 2015. The Prime Office Metros Index advanced by an even stronger 12% in the 12 months ended September 2015, propelling it to within 1.2% of its prior peak level.
- INDUSTRIAL MARKET PRICE GROWTH HIGHER OUTSIDE PRIME METROS. The industrial sector’s solid fundamentals performance has supported price growth of 2.6% in the third quarter of 2015 and 10.9% in the 12 months ended September 2015. The Industrial Index is now within 6.3% of last cycle’s peak. The Prime Industrial Metros Index has generally mirrored that of the broader market. Although its 7.7% increase in the 12 months ended September 2015 was lower than the national Industrial Index, and the Prime Industrial Metros Index remained 15% below last cycle’s peak. This suggests more room for price appreciation as rents continue to rise, but space markets are expected to become increasingly competitive as construction levels increase.
- HOSPITALITY INDEX UP NEARLY 60% FROM ITS RECESSIONARY NADIR. After suffering the biggest peak-to-trough decline of any of the property types in the last recession, the U.S. Hospitality Index surged upward by 13% in the 12 months ended September 2015, climbing 59.3% above its recessionary trough. National hotel occupancies hover near their highest levels since the mid-1990s, which has supported room rate and RevPAR growth as well as investor demand.
- STILL IN EARLIER STAGE OF RECOVERY, LAND INDEX POSTED STRONGEST ANNUALIZED GROWTH. The Land Index gained 17.8% in the 12 months ended September 2015, driven by increased demand for development sites across all property sectors. Despite strong gains over the last year, the index is still in the earlier stages of its recovery. It did not reach its trough for this cycle until 2012, well after most other property types, and remains 18.1% below last cycle’s peak.
CCRSI National Results Highlights
NORTHEAST REGION PROPERTY PRICING FULLY RECOVERED AS PRICE INDICES EXCEED PRIOR PEAKS. The Northeast Composite Index had the shallowest peak-to-trough decline (26.7%) in the downturn of the four U.S. regions, thanks to its strong concentration of top-tier property markets that have been a magnet for investment this cycle. Price growth of 12.6% in the Northeast Composite Index for the 12 months ended September 2015 was the strongest rate of the four regions, and the Index is now 11.7% above its prior peak. The Northeast Multifamily and Retail indices led the recovery and reached their previous peak pricing in 2014, while the Northeast Industrial Index and Northeast Office Index surpassed prior peak pricing in the second quarter and third quarter of 2015, respectively.
- WEST COMPOSITE INDEX WITHIN 3.5% OF PREVIOUS PEAK LEVEL. After the Northeast region, the West Composite Index has realized the second-strongest price recovery since the recession. The West Multifamily and Office indices led growth in the region in the 12 months ended September 2015, gaining 13% and 11.2%, respectively. Strong fundamentals in the index’s core markets, including Los Angeles and San Francisco, have propelled pricing in the West Multifamily Index to 23.5% above its prior peak.
- MULTIFAMILY INDEX LED GROWTH IN THE SOUTH REGION. Of the four regional property type indices, the South Multifamily Index was the only one to grow at a double-digit rate for the 12 months ended September 2015, propelling it to 3.6% above its previous peak level. Pricing has rebounded in fast-growing multifamily markets, especially those in Texas and North Carolina, which had exceptionally strong demand growth despite rising supply levels, and solid rent gains. The South Office Index was the second-best performer in the region, rising 9.4% in the 12 months ended September 2015, although it remained 13.8% below its prior peak level.
- LAGGING OTHER REGIONS, MIDWEST GAINED MOMENTUM. Although the region has lagged in the recovery, the Midwest property type indices have increased as more capital has moved to secondary and tertiary markets over the last year in search of higher yields. All four regional property type indices posted double-digit growth in the 12 months ended September 2015, contributing to an 11.8% annual gain for the Midwest Composite Index, second only to the Northeast Composite Index. The Midwest Industrial Index led growth in the region, increasing by 12% in the 12 months ended September 2015, and now stands just 8.2% below its prior peak level.
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.
Becky Carr, Chief Marketing Officer, CoStar Group (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, 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 10.0 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. CoStar Group operates websites with over 23.7 million unique monthly visitors in aggregate as of September 2015. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe and Toronto with a staff of approximately 2,850 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 improving fundamentals, higher yields and increasing investment; the risk that industrial space markets do not become increasingly competitive as construction levels increase and that prices and rents do not continue to rise; 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, and Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, each of which is filed with the SEC, including in the "Risk Factors" section of those filings, 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.