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Latest CoStar CCRSI Analysis: Commercial Real Estate Price Recovery Accelerates In May

Stocks in this article: CSGP

WASHINGTON, July 17, 2013 (GLOBE NEWSWIRE) -- This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at May 2013 commercial real estate pricing. Based on 1,220 repeat sales in May 2013 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

May 2013 CCRSI National Results Highlights

  • COMMERCIAL REAL ESTATE PRICES ADVANCE ACROSS THE BOARD 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 0.7% and 2.0%, respectively, in the month of May 2013, reflecting continued improvement in market fundamentals and increased investment activity. The value-weighted index, which is heavily influenced by larger transactions and typically tracks with high quality core real estate prices, has now increased by 41% from its most recent trough in 2010. For comparison, the equal-weighted index, which is influenced by smaller, more numerous opportunistic transactions, has improved by 10% from its bottom in 2011.  
  • INVESTMENT GRADE INDEX REACHES HIGHEST LEVEL IN MORE THAN FOUR YEARS: Within the equal-weighted U.S. Composite Index, the Investment Grade segment shook off the seasonal slump of the previous months and surged ahead by 2.6% in May 2013. The Investment Grade index, which broadly encompasses upper-middle tier properties, has now recovered by 24.6% since prices for investment-grade property reached a trough in October 2009. Pricing in the General Commercial segment has taken longer to recover, but investor demand for smaller and lower-quality commercial property assets has risen in tandem with those in the investment grade segment in recent months. Pricing in the General Commercial segment advanced 1.7% from the previous month and 8.2% from its recent nadir in the first quarter of 2011 as investment activity has increasingly extended into secondary markets and property types.  
  • STRONG SECOND QUARTER 2013 ABSORPTION IN BOTH INVESTMENT GRADE AND GENERAL COMMERCIAL SEGMENTS SUPPORTS PRICING GAINS: Net absorption of available space for the three major property types – office, retail, and industrial – has been positive over the past three years. For the majority of that period, core office markets, including New York, San Francisco and Houston, and large distribution markets such as Dallas and Chicago, have led absorption in the Investment Grade segment, as reflected by the faster pricing growth in this index since 2009. More recently though, the General Commercial segment has posted robust gains in absorption as well, indicating a broader and more sustained commercial real estate recovery.  
  • DISTRESS SALES DECLINE WITH IMPROVING FUNDAMENTALS: The percentage of commercial property selling at distressed prices declined to an average of 14.1% in April and May, the lowest two-month average on record since 2008. The decline in the number of distressed trades continues to support higher, more consistent pricing and has enhanced market liquidity by giving buyers and sellers greater confidence to do deals.

Monthly CCRSI Results, Data through May of 2013

  1 Month Earlier 1 Quarter Earlier 1 Year Earlier Trough to Current
Value-Weighted U.S. Composite Index 0.7% 2.4% 9.4% 41.0% 1
Equal-Weighted U.S. Composite Index 2.0% 5.0% 8.0% 10.6% 2
 U.S. Investment Grade Index 2.6% 6.2% 14.0% 24.6% 3
 U.S. General Commercial Index 1.7% 4.0% 6.2% 8.2% 4
1 Trough Date: January, 2010   Trough Date: March, 2011  3   Trough Date: October, 2009    4 Trough Date: March, 2011

Monthly Fundamentals, Data through June of 2013

  Net Absorption (in millions of square feet)
  2011 2012 2013Q1 2013Q2
Aggregate  283.3 307.4 92.6 81.8
Investment Grade  201.2 218.3 61.7 47.6
General Commercial  82.1 89.1 30.9 34.2
Note: "Net Absorption" is the change in occupied space, calculated based on three types of properties: office, retail, and industrial.  

A chart accompanying this release is 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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