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Latest CoStar CCRSI Analysis: Annual Pricing Gains Seen Across All Regions And Property Types Despite Seasonal Slowdown In First Quarter 2013

WASHINGTON, May 15, 2013 (GLOBE NEWSWIRE) -- This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at March 2013 commercial real estate pricing. Based on 1,062 repeat sales in March 2013 and more than 100,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

March 2013 CCRSI National Results Highlights
  • PRICING RECOVERY SLUGGISH IN THE FIRST QUARTER: 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—were slightly negative in March 2013, a continuation of a seasonal pattern witnessed in the last several years which contributed to modest declines in the first quarter. Despite the uneven first quarter performance, commercial real estate prices are still up appreciably from year ago levels. The equal-weighted index, which reflects more numerous smaller transactions, increased 5.7% from March 2012, while the value-weighted index, which is influenced by larger transactions, expanded by 8.1% during the same period.  
  • SEASONALITY CONTINUES TO BE EVIDENT IN THE COMMERCIAL REAL ESTATE MARKET: In each of the past four years, a pricing decline in the first quarter has been preceded by a similar pricing increase in the last quarter of the previous year. These year-end spikes have been consistent with elevated transaction volume as investors rush to close deals, while the first-quarter declines have coincided with a return to more typical trading activity. This volatility is a normal and expected occurrence and should not be interpreted as a regression in real estate prices. Despite the recent decline, the two components of the Equal-Weighted Index—the Investment Grade Index and General Commercial Index—remained 11.0% and 4.9% above year-ago levels, respectively.
  • TRANSACTION VOLUME ACCELERATES IN MARCH: Composite pair volume of $5.5 billion in March 2013 marked an increase from a $3.3 billion monthly average during January and February 2013. Yet the first quarter's total of $12.1 billion was well below the record-setting volume reached in the final quarter of 2012, as expected. Transaction volume for the first quarter of 2013 was in line with the first quarter of 2012's total and well above the first quarter totals of 2011 and 2010. Transaction volume appears to be responding to acceleration in lending volume across debt capital sources including CMBS, banks, life insurers and GSEs, which has created a favorable environment for commercial real estate transaction activity.  
  • DISTRESS SALES DECLINE: The percentage of commercial property selling at distressed prices dropped to 16.4% in March 2013 from 25.5% in March 2012.

Monthly CCRSI Results, Data through March 2013
  1 Month Earlier 1 Quarter Earlier 1 Year Earlier Trough to Current
Value-Weighted U.S. Composite Index -0.1% -0.3% 8.1% 37.5% 1
Equal-Weighted U.S. Composite Index -1.0% -3.5% 5.7% 6.8% 2
 U.S. Investment Grade Index -2.0% -2.0% 6.0% 14.9% 3
 U.S. General Commercial Index -1.0% -3.7% 5.5% 6.2% 4
1 Trough Date: January, 2010  2 Trough Date: March, 2011  3 Trough Date: October, 2009    4 Trough Date: March, 2011

Quarterly CCRSI Property Type Results
  • While the seasonal slump was observed across the four major property types in the first quarter of 2013, year-over-year gains across each sector demonstrates the breadth of the recovery in commercial real estate prices as more investment capital fans out to secondary markets and property types.   
  • The multifamily pricing index continued to post the strongest results during the first quarter of 2013, and is now up 33% from its trough in 2009. While the multifamily sector's outperformance is partially driven by relatively stronger fundamentals, it is also a function of lenders, largely the two major government-sponsored enterprises (GSEs), which have provided inexpensive debt financing for apartment property buyers following the downturn. However, there are signs of a deceleration in multifamily fundamentals, mainly as a result of growing new supply, especially in the primary markets where pricing has already reached its prior peak level. The multifamily index notched gains of 0.8% in the first quarter, which was the best of the four major property types, but a notable deceleration from its quarterly average pace of 3.2% over the last two years.   
  • Despite the seasonal pricing dip observed in the first quarter of 2013, the office index has made modest gains over the last year, rising by 2.8%, which is reflected in the slow but steady improvement in market fundamentals during this time. The prime office market segment, which is heavily influenced by the technology and energy-driven markets, led the overall index. The Prime Office Markets Index advanced by 23.4% over the last year, the strongest gain in the core market segment for the four major property types.   
  • While the recovery in the industrial property sector began later in relation to the other major property types, pricing in the industrial index advanced by a sturdy 7.7% from its trough in the first quarter of 2012, the strongest annual gain behind only the multifamily sector. Big-box distribution facilities located in primary logistics hubs have led the pricing recovery, which is reflected in the stronger 15.5% gain in the Prime Industrial Metros Index over the last year. However, the emergence of large, modern logistics buildings in secondary markets is increasingly providing investors the opportunity to acquire such properties outside of the mainstream markets.  
  • Mirroring the slow but steady improvement in retail vacancy rates across most markets, the retail index has posted modest year-over-year price gains of 2.9% over the last year.  Retail property pricing is now 8% above its trough reached in early 2011 but still about a third below the peak of the last cycle. The prime retail markets index advanced by a stronger 19.3% over the last year indicating that investors have been hesitant to venture very far beyond core assets, including well-leased grocery anchored centers in primary markets, at this point in the cycle.   
  • The land index continued to post price gains over the past four quarters due to strong demand for multifamily development sites and the stabilizing single-family market. The Land Pricing Index gained 1.5% in the first quarter of 2013, accumulating 6.5% price gains over the last year.  
  • The Hospitality Pricing Index also made promising gains over the last year, increasing by 11% from the first quarter of 2012. This sector was slow to recover after suffering the steepest cumulative price losses among all the property types during the recent recession. However, with average room rates on the rise in most markets, hotels are becoming a more desirable asset class among investors.

Quarterly CCRSI Regional Results
  • Despite the seasonal slowdown in the first quarter of 2013, all four major U.S. regions posted positive year-over-year pricing gains, driven primarily by superior performance in the industrial and multifamily sectors. The Northeast Composite Index, which has been bolstered by exceptional pricing growth in a handful of prime multifamily markets, remains at the forefront of the recovery. Accordingly, the Northeast Multifamily Index is the only index in which the current level has surpassed the previous peak.   
  • The Midwest Composite Index has seen the slowest recovery of the four regions. However, as capital has expanded into secondary metros and more property types over the last year, pricing has advanced by a cumulative 5.9% annually, primarily due to exceptional increases in the industrial and multifamily pricing in this region.  
  • The South and West Composite Indices continued a moderate pace of recovery advancing by 5.2% and 3.7%, respectively, for the year ended March 2013. As is the case in the Midwest, strong pricing performance in the industrial and multifamily sectors are driving the recovery in these regions. The South Multifamily Index posted an impressive annual gain of 15.2% as investors have taken notice of the strong (albeit belated) recovery in several housing bust metros in this region. 

Several charts accompanying this release are available at

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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