Jul 16, 2014
Strong Market Fundamentals Support Broad Price Gains In May
Value-Weighted U.S. Composite Price Index Approaches Prerecession Peak Levels
U.S. Composite Price Index Approaches Prerecession Peak Levels
CCRSI RELEASE – JULY 2014
(With data through MAY 2014)
This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at May 2014 commercial real estate pricing. Based on 1,282 repeat sales in May 2014 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.
CCRSI National Results Highlights
- COMMERCIAL REAL ESTATE PRICES POST DOUBLE-DIGIT ANNUAL GAINS IN MAY: 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—increased by 0.9% and 1.2%, respectively, in the month of May 2014, and 11.4% and 11.7% respectively, year over year, reflecting a broad improvement in market fundamentals seen across all property types. The value-weighted U.S. Composite Index, which is heavily influenced by core property transactions, has now risen within 1% of its prerecession peak level reached in 2007, while its equal-weighted counterpart, which is more influenced by smaller non-core property sales, has recovered to within 20% of its 2007 high water mark.
- MOMENTUM PICKS UP IN THE GENERAL COMMERCIAL SEGMENT: Within the equal-weighted U.S. Composite Index, the U.S. General Commercial Index, which includes lower-tier properties, advanced by 12.7% for the 12-month period ended in May 2014, while the U.S. Investment Grade Index, which broadly encompasses upper-middle tier properties, expanded by 7.0% for the same time period. As pricing for core assets has continued to rise, investment activity has moved further out on the risk spectrum to include a broader scope of markets and property types, which has pushed up pricing at the low end of the market.
- IMPROVEMENTS IN MARKET FUNDAMENTALS UNDERPIN GROWTH IN COMMERCIAL PROPERTY PRICING: Net absorption for the three major property types – office, retail, and industrial – climbed to 369.5 million square feet for the year ending in the second quarter of 2014, an increase of 1.6% from the prior 12-month period. Although the most recent annual absorption total is still just 60% of annual demand gains posted in 2007, it was enough to lower vacancy rates below the trailing 10-year average for the office and retail sectors, while the average vacancy for the industrial sector is now below pre-recession levels. Reflecting recent movements in pricing at the low end of the market, net absorption in the General Commercial segment increased by 9.8% for the year ending in the second quarter of 2014, compared with a decline of 1.5% in the Investment Grade segment.
- CAPITAL FLOWS REMAIN HEALTHY: Improving market fundamentals are supporting strong capital flows to the commercial property sector as evidenced by the steady increase in repeat-sale transaction activity. Composite pair volume of $31.1 billion through the first five months of 2014 marked a 25% increase from the same period in 2013.
- DISTRESS LEVELS CONTINUE TO DISSIPATE: The percentage of commercial transactions involving distressed assets has declined to 10.5% in May 2014 from over 17% one year earlier. In the multifamily and industrial sectors, the distress share of total sales fell into the single digits, while it remains comparatively high at 11% in the retail sector and 17% in the office sector, suggesting there is more room for pricing appreciation. The share of distress trades in late-recovery markets such as Chicago, Atlanta, and Detroit remain near 20%, while in the early-recovery, coastal markets of Los Angeles, San Francisco and San Jose, distress levels are nearly non-existent.
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, 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. Through LoopNet, the Company operates the most heavily trafficked commercial real estate marketplace online with more than 8 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 that have approximately 16 million unique monthly visitors in aggregate. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe with a staff of over 2,300 worldwide, including the industry's largest professional research organization. For more information, visit http://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 to follow 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, 2013, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, 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.