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Latest CoStar Commercial Repeat-Sale Analysis: Property Pricing Sees Little Movement In June On Economic Uncertainty And Slower Pace Of Market Recovery

WASHINGTON, Aug. 16, 2012 (GLOBE NEWSWIRE) -- This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at June 2012 commercial real estate pricing. Based on 854 repeat sales in June 2012 and more than 100,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity. Also in this release, CoStar Group includes analysis of prime market indices by property type for the first time.

August 2012 CCRSI National Results Highlights

  • COMMERCIAL REAL ESTATE PRICING LOSES MOMENTUM: Coincident with the slowing of global economic growth, demand for space weakened in the second quarter of 2012 across most commercial real estate property types. Despite lower leasing demand, the U.S. Value-Weighted Composite Index held its ground in June 2012, while the U.S. Equal-Weighted Composite Index edged downward slightly. On a quarterly basis, both indices advanced by 2.0% and remained within 150 basis points of their cyclical peaks.  
  • INVESTMENT GRADE INDEX ADVANCES: The Investment Grade segment of the market reversed the price loss seen in May 2012 and advanced by 1.5%. Despite a 2.5% cumulative loss since the beginning of the year, the Investment Grade Index posted the highest quarterly growth among the four major CCRSI segments and remained 4.8% above year-ago levels.  
  • GENERAL COMMERCIAL INDEX REGRESSES: The Equal-Weighted General Commercial Composite Index decreased by 2.0% in June 2012 as economic uncertainty took a toll on property pricing. This index had steadily recovered since the beginning of 2012, but weak demand for space during the second quarter has begun to negatively affect pricing in this asset segment, indicating that higher quality property is back in favor again among investors. Nevertheless, the index closed the first half of 2012 a full 2.0% above January levels.  
  • DISTRESS LEVELS DECLINING: Only 18.6% of observed trades in June 2012 were distressed, a level notably lower than the 28.8% average over the past three years.

A chart accompanying this release is available at http://media.globenewswire.com/cache/9473/file/14992.pdf

Quarterly CCRSI Property Type Results

  • The run-up in multifamily pricing continued in the second quarter of 2012. This property sector has been leading the recovery among all major property types in terms of timing and magnitude. The Multifamily Index advanced by a cumulative 24.3% from the trough through the first half of 2012, putting this sector closest to its peak level in 2007.  
  • The retail sector suffered steep price losses during the recent recession. But after four years, retail property is beginning to show signs of pricing recovery. While investors remain cautious, pricing for this sector posted 3.7% average quarterly growth over the first six months of 2012. After bottoming in June 2011, the retail property sector has since advanced by 10.1%.  
  • With unemployment ticking up during the second quarter of 2012, combined with the European debt crises, the pace of U.S. office recovery has moderated. The Office Index for June 2012 reflected the economic uncertainty in the market, with only modest pricing growth of 1.7% over year-ago levels.  
  • Alone among the major property sectors, the Industrial Index recorded a pricing loss in the second quarter of 2012. To date, the recovery among industrial market fundamentals has centered on big-box distribution facilities in primary logistics hubs, but that highly concentrated investment activity has not translated into sufficient value growth to lift the Industrial Index, which declined by 1.7% in the second quarter of 2012, reaching its lowest level since 2003.  
  • The Hospitality Index saw a promising pricing increase in the second quarter of 2012. Hospitality has been slow to recover since suffering the steepest cumulative price losses among the primary sectors. With average room rates rising in most markets, however, hospitality is becoming a much more desirable asset class among investors. The index has staged an impressive recovery, increasing by a cumulative 13.2% since the beginning of 2012.  
  • Land prices continue to erode, reflecting the general aversion to development at this time, with the exception of multifamily property.

Quarterly CCRSI Regional Results

  • Among the CCRSI's four major U.S. regions, the West Composite Index turned in the strongest quarterly increase with a 5.5% pricing gain in the second quarter of 2012 based primarily on exceptional increases in the multifamily and retail property sectors. This region advanced by a cumulative 11.4% through the first half of 2012.  
  • The Northeast Composite Index also saw strong pricing gains as the second best performing region in the second quarter of 2012. After bottoming two years ago, commercial property pricing in this region has advanced by a cumulative 16.6%. All major property sectors in this region, except industrial, have experienced pricing recovery, putting this region closest to its peak level.  
  • The Midwest and South Composite Indices remain near the trough of their pricing cycles. Prices in both regions did not change significantly from the same period last year. Contrarily, in the Midwest region, the industrial sector was the only sector with positive quarterly gains, while in the South region multifamily and office sectors posted only modest positive gains.

Quarterly CCRSI Prime Markets Results 1

  • With this CCRSI release, CoStar Group includes pricing analysis for certain prime U.S. markets by property type for the first time. In the second quarter of 2012, all prime markets' indices demonstrated positive value gains, with prime retail markets posting the largest increase among all property types. Similar to the rest of the nation's performance, pricing within the Prime Retail Markets appears to have entered the recovery phase.  
  • Reflecting the outsized investor interest in big-box distribution centers in major logistics hubs, the Prime Industrial Markets Index posted 5.4% in positive gains during the second quarter of 2012. By contrast, the U.S. Industrial Index, which covers the U.S. as a whole, retreated in the second quarter, suggesting this sector continues to experience pricing bifurcation by asset class.  
  • After retreating slightly in the first quarter of 2012, pricing for the prime office markets ended the first half of 2012 on a positive note. The outsized economic growth and supply constraints of these primarily coastal gateway markets continued to attract investor interest, despite an overall decrease in office pricing and transaction volume for the U.S. as a whole at midyear 2012.  
  • Similar to prime office markets, prime multifamily markets posted positive pricing gains after retreating in the first quarter of 2012. Prime multifamily markets have been leading the recovery of commercial real estate. This segment advanced by a cumulative 35.7% through the first half of 2012 since the trough of the cycle, placing it the closest to its peak levels in 2007. 

1Commencing with this release, CoStar will replace the Top Ten Metro Index with the new Prime Market Index. While the Top Ten Metros were based purely on market size, Prime Markets are selected for each property type based on a number of factors, including 1) total market size, 2) average price per square foot, 3) transaction volume, 4) level of institutional ownership, and 5) expert opinion. Please refer to the "CCRSI Prime Market Coverage" table at the end of this release for a list of markets covered by the new index.

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 (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).

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