(With Data through March, 2011)
Print Release (PDF)
- Market continuing to adjust from “bubble” prices as 70.2% of the acquisitions made from 2005-2007 and subsequently sold in the first quarter of 2011 sold at a lower price.
- Comparatively, 40.5% of acquisitions made before 2005 and subsequently sold in the first quarter of 2011 sold at a lower price.
- 55% of the first quarter 2011 sales pairs were for properties previously purchased in 2005 or after.
- CoStar’s Investment Grade Repeat-Sale Index was down 10.5% for the first quarter following an 8.4% increase in the fourth quarter. This continues the see-saw pricing pattern observed with oscillating quarterly sales data and returns the Investment Grade Index within 2% of its market low in the fourth quarter of 2009. From its peak in the second quarter of 2007 the Investment Grade pricing index has declined 39%.
- CoStar’s General Grade Repeat Sales Index declined by 1% in the first quarter after a 5.7% decline in the fourth quarter. The General Grade Index reached a new low in the first quarter and is down 33% from its market peak in the third quarter of 2007.
- The weak performance of the Investment Grade index during the first quarter along with the continued weakness in the General Grade Index collectively led to a 2.8% decline in the U.S. National Composite Index, which is an equal-weighted repeat sales analysis of all commercial real estate sales, with two-thirds of the transaction count contained within the General Grade Index.
- Among the CCRSI’s regional prices indices, the Northeast region of the United States continues to lead the nation in terms of strengthening prices having recovered 29% of its pre-recession pricing levels. However, the Midwest posted the strongest quarterly gain of 3.2%. The Midwest now replaces the Southeast as the only other region to join the Northeast as having gained back any of its pre-recession pricing levels.
- Overall, pricing for commercial real estate in the Northeast remains 15% lower than its pre-recession pricing levels. The West, Midwest and Southeast regions remain down 38%, 37% and 35% respectively.
- The Northeast region of the United States benefits from the impact of commercial property sales in New York City and Boston, two desirable core markets that have continued to attract investor interest, and have generally stronger economic conditions and superior multifamily pricing performance.
- Retail was the only property type that did not experience a pricing decline during the first quarter of 2011. Retail posted a 1.6% gain while office declined 11.7%, industrial declined 5.1% and multifamily declined 3.1%.
- The criteria used to determine which sales pairs are included in the Investment Grade Index has been modified. The goal of this change is to increase the differentiation between the properties tracked in the General Grade Index and the Investment Grade Index.
National Composite Monthly Indices
Comparison Table for Current Release (Ending 3/31/2011)
The CoStar Commercial Repeat-Sale Indices (CCRSI) are the most comprehensive and accurate measures of commercial real estate prices in the United States. In addition to the national composite index, there are a total of 32 sub-indices in the CoStar index family. The sub-indices include breakdowns by property sector (office, industrial, retail, multifamily 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 10 largest metropolitan areas in the country). The CoStar national composite index is produced on a monthly basis.
The CoStar indices are constructed using a repeat sales methodology, widely considered as the most accurate way to measure price changes for real estate. The repeat sales methodology measures the movement in the prices of commercial properties by collecting data on the actual sales prices that occur when a property sells. When a property is sold more than one time, a sale pair is created. The prices from the first and second sale are then used to calculate price movement for the property. By aggregating all the price changes from all of the sale pairs, a price index is created.
COMMENTARY ON DATA
The CCRSI May 2011 report is based on data through the end of March, 2011. In March of 2011 856 sales pairs were recorded compared to 983 in the prior month, 614 in January and 1,227 in December. It is typical to see lighter volume in the first part of the year. In March of 2010 the sales pair count was 759, so volume on this basis is up 12.8% from a year earlier. Distress sales as a percent of the total sales pairs stood at 31.9% in March, up from 28% in February 2011 but down from 32.1% in March, 2010. By property type the highest percent of distress in the first quarter was in hospitality at 42.6%, followed by office at 35%, retail at 30%, industrial at 28.4% and multifamily at 25.4%.
Overall, there has been a significant 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 405 transactions were recorded. Since then, pair dollar volume has increased overall and the average deal sizes for both general and investment grade have increased.
We provide one graph below showing the sales counts and a second showing dollar volume. Note that by transaction count the general sales accounted for 85% of the total sales transaction count in February 2011 and 89% in March 2011. By volume in March 2011 the investment grade properties represented 56% of total volume. The average investment grade deal size in March 2011 was $15.2 million, $17.1 million in February 2011 and $17 million in January 2011. The average dollar size for the general index was $1.5 million in March 2011.
Number of Repeat-Sale Transactions by Count
Number of Repeat-Sale Transactions by Volume
National Property Type Quarterly Indices Through March of 2011
U.S. Regional Quarterly Indices Through March 2011
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