CoStar Commercial Repeat-Sale Indices, November 2011 Release
(With Data through September, 2011)
Print Release (PDF)
Resuming an upward trend following a pause in August, CoStar’s monthly National Composite Index of commercial real estate prices gained 0.4% in September resulting in a quarterly increase of 0.9% for the third quarter of 2011 compared to the second quarter of 2011. Prices advanced because of the continued, gradual decline in distress sales, and price recovery in retail and multifamily property sales. This month's CoStar Commercial Repeat Sale Index (CCRSI) provides the market's first look at September 2011 commercial real estate pricing. Based on 825 repeat sales transactions in September 2011 and more than 100,000 repeat sales transactions since 1996, CCRSI offers the broadest measure of commercial real estate repeat sales activity.
September 2011 Highlights
- The National Composite Index increased by 0.4% in September 2011, accompanied by a monthly gain of 0.5% in the Investment Grade Index and 0.4% in the General Commercial Index.
- The General Commercial Index continued its steady positive trend over five consecutive months to produce a 1.6% increase during the third quarter over the second quarter of 2011, its second consecutive quarter of positive price increases. The Investment Grade Index edged down 1.4% on a quarterly basis, largely the result of the price softening in August. Overall, the National Composite Index advanced 0.9% in the third quarter of 2011.
- The quarterly upward trend in the National Composite Index was supported by the gradual decline in sales of distressed properties while non-distressed property sales posted solid quarterly price increases, including a 2.3% quarterly gain for general commercial properties and a 1.9% gain for all commercial properties.
- In another highlight of the quarter, the CCRSI Multifamily Index posted a 2.1% quarterly gain, which followed the strong 7.3% increase in multifamily pricing in the second quarter of this year. Since bottoming-out in the second quarter of 2010, the Multifamily Index has increased 12.3% and outperformed all the other property indices. Pricing for office, retail, and industrial properties, on the other hand, continued a pattern of oscillating sale prices. The lack of a clear upward trend for these property types reflects the uneven path the recovery has taken.
- Among the CCRSI’s four regional indices, the Northeast recorded the highest quarterly price increase at 2%. At the end of the third quarter of 2011, the Northeast Index was only 19.8% below its most recent peak value, having seen the smallest price drop among the four regions during the Great Recession. By the same measure, pricing for commercial property is 34.8% below peak value in the South region, 36.4% below peak value in the West, and 40.1% below peak value in the Midwest.
- Despite great uncertainties in current economic conditions, the commercial real estate market recovery continued, albeit slowly and at a bumpy pace. The steady and solid recovery of the General Commercial Index also indicated broad interest in commercial real estate among investors.
Monthly CCRSI Results
- CoStar’s Investment Grade Commercial Repeat Sales Index increased by 0.5% in September 2011, and is now 2% above the same period last year and 35.8% below its peak in August 2007.
- CoStar’s Composite Commercial Repeat Sales Index increased by 0.4% in September 2011. It is now 3.2% below the same period last year and 33.9% below its peak in August 2007.
- CoStar’s General Grade Commercial Repeat Sales Index increased by 0.4% in September 2011 and is now 4.1% below the same period last year and 33.7% below its peak in August 2007.
National Monthly Indices
Comparison Table for Current Release (Ending 9/30/2011)
| ||1 MONTH EARLIER ||1 QUARTER EARLIER ||1 YEAR EARLIER ||PEAK TO CURRENT |
|National All Property Type Composite || |
|National Investment Grade || |
|National General Commercial || |
Quarterly CCRSI Property Type Results
- For the quarter ending September 30, 2011, retail and multifamily prices advanced, while office and industrial prices retreated.
- The U.S. Retail Index had the highest gain in prices, increasing by an impressive 5.0% over last quarter. However, the price level was still 3.9% below the same period last year, and 32.8% below its peak in the third quarter of 2007.
- The U.S. Multifamily Index continued its solid positive trend in the third quarter 2011, growing 2.1% over the previous quarter, the only property type index with year-over-year positive growth. This puts the Multifamily Index the closest to its peak values among the four major property types, 29.5% below its peak in the second quarter of 2007.
- The U.S. Office Index went down by 5.1% in the third quarter of 2011 after a strong 15.5% gain in the second quarter of 2011. The office index is currently 38.5% below its peak in the second quarter of 2008, the biggest decline among all four property types.
- Similar to office, the U.S. Industrial Index fell by 3.6% in the third quarter. Prices for industrial property are currently 9.3% below the same period last year, and 33.1% below their peak in the first quarter of 2008.
U.S. Property Type Quarterly Indices through September of 2011
Quarterly CCRSI Regional Results
- Among the four regions, the Northeast performed the best in the third quarter of 2011, followed by the West, South, and Midwest. All property types in the Northeast except retail showed positive price movements, accumulating a 2.0% quarterly gain. The Northeast Composite Index was 5.2% above the same period last year, and 19.4% below its peak in the second quarter of 2007. The Northeast Office Index had the highest quarterly increase of 2.1%, followed by Multifamily with a 1.3% increase, and Industrial with a 0.1% increase. The Northeast Retail Index declined by 3.34% in the third quarter of 2011.
- The West Composite Index also recorded positive price changes in the third quarter of 2011 and posted a 1.36% quarterly increase, offsetting price declines over the same period last year. Among major property types in the region, the Retail Index had the largest gain of 10.1%, followed by Multifamily with a 0.2% quarterly gain. Office prices, however, declined by 3.7%, wiping out the pricing gains made since the third quarter of 2010. The West Industrial sector continued its price decline of the past two years, falling another 1.7% in the third quarter of 2011.
- The South Composite Index edged up slightly during the third quarter of 2011, increasing by 0.5% over the second quarter, but still 2.6% below the same period last year. The price gains were mainly concentrated in retail and industrial, at 8.9% and 6.7%, respectively. But these positive price gains were mostly offset by a 6.4% quarterly decline in office pricing.
- The Midwest region is still searching for a pricing bottom. With the exception of office property, prices for all property types in the Midwest continued to fall with the Midwest Composite Index declining by another 0.8% in the third quarter of 2011. The index is currently 9.8% below the same period last year, and 40.4% below its peak in the second quarter of 2007, the largest decline among all U.S. regions.
U.S. Regional Quarterly Indices through September of 2011
U.S. West Property Type Quarterly Indices through September of 2011
U.S. South Property Type Quarterly Indices through September of 2011
U.S. Midwest Property Type Quarterly Indices through September of 2011
U.S. Northeast Property Type Quarterly Indices through September of 2011
Quarterly CCRSI Top 10 Markets Results
- Multifamily and Retail Top 10 indices outpaced the national average for the third quarter of 2011, while the Office and Industrial Top 10 indices underperformed the national average.
- In the third quarter of 2011, the Retail Top 10 Index recorded the highest quarterly return, 10.4%, almost double the National Retail Index quarterly return.
- The Multifamily Top 10 Metro Index went up by 3.5%, more than 1% above the National Multifamily Index quarterly return.
- In the third quarter of 2011, both Office and Industrial Top 10 Metro indices declined, by 12.1% and 9.45%, respectively, slightly more than the National Office and Industrial indices.
- At quarter’s end, Office, Retail, Industrial, and Multifamily Top 10 Metro indices remain down 38.0%, 30.9%, 38.1%, and 19.9%, respectively, from their peaks.
Office Top 10 Metros Quarterly Indices through September of 2011
Industrial Top 10 Metros Quarterly Indices through September of 2011
Retail Top 10 Metros Quarterly Indices through September of 2011
Multifamily Top 10 Metros Quarterly Indices through September of 2011
Commentary on data
The CCRSI November 2011 report is based on data through the end of September 2011. With a total of 825 sales pairs for the month, the transaction activity slightly declined from the previous month but remained at a level comparable to the period of 2004-2008. At the low point in the last downturn, a total of only 385 transactions were recorded in January 2009. Of the total 825 sales pairs, 682 were General Commercial property sales and 143 were Investment Grade.
Total transaction dollar volume declined slightly by 1.2% from its six-month average. The decline in dollar volume was concentrated in the General Commercial index, where the volume fell by 5.9% from its six-month average. The Investment Grade transaction volume stayed at par with its six-month average.
Distress sales as a percentage of total sales continued to decline from a peak of 35.4% in March 2011, and accounted for 25.0% (206 sale pairs) of all repeat-sale transactions in September 2011. Even though distress sales gradually declined over the past six months, the overall level was still high, suggesting that distress continues to be a significant factor in CRE pricing.
We provide three graphs below showing the sales counts, dollar volume, and distress sales as a percentage of total sales. Note that by transaction count, General Grade sales pairs accounted for 83% of the total sales transactions, a ratio that has been stable in the last 12 months.
Number of Repeat-Sale Transactions by Count
Number of Repeat-Sale Transactions by Dollar Volume
Distressed Sales as a Percentage of Total Sales
About the CoStar Commercial Repeat-Sale Indices
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, national Investment Grade Index and national General Commercial Index, which we report monthly, we report quarterly on 28 sub-indices in the CoStar index family. The sub-indices include breakdowns by property sector (office, industrial, retail, and multifamily), 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 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 sale pair is created. The prices from the first and second sale are then used to calculate price movement for the property. The aggregated price changes from all of the sale pairs are used to create a price index.
For more information about CCRSI Indices, including our legal notices and disclaimer, please visit http://www.costar.com/ccrsi.