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Latest CoStar Commercial Repeat Sale Analysis: Commercial Real Estate Prices Remain On Upward Trajectory In January

Stocks in this article: CSGP

WASHINGTON, March 12, 2014 (GLOBE NEWSWIRE) -- This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at January 2014 commercial real estate pricing. Based on 1,081 repeat sales in January 2014 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

January 2014 CCRSI National Results Highlights

  • CRE PRICES ADVANCE IN JANUARY DESPITE SEASONAL VOLATILITY: In a pattern repeated over the last several years, the number of repeat property sales in January 2014 fell from the previous several months as trading activity predictably returned to a more normal level following the frenzied pace at year-end. This slowdown in investment activity has typically accompanied a pricing decline in the first quarter. And while the CCRSI Value-Weighted U.S. Composite Index slipped by a slight 0.6% in January 2014, reflecting the slowdown in sales activity among larger properties, the Equal-Weighted U.S. Composite Index, which is more heavily influenced by smaller transactions, remained on an upward trajectory, increasing by 1.0% in January 2014.
  • PRICE GROWTH BECOMING ENTRENCHED WITH CONSISTENT GAINS AT HIGH AND LOW ENDS OF THE MARKET: Bolstered by strong investor interest throughout the recovery for core markets and multifamily property, the equal-weighed U.S. Investment Grade Index has led pricing gains, advancing more than 33% from the market trough in 2009. By comparison, the equal-weighted U.S. General Commercial Index did not turn positive until 2011. The recovery in fundamentals has now broadened across the size and quality spectrum in many markets, which is reflected in the consistent pricing gains in both indices over the last year. The equal-weighted U.S. Investment Grade Index climbed 17.5% and the equal-weighted U.S. General Commercial Index rose 10.9% for the 12 months ending in January 2014.
  • EXPANDED LENDING SUPPORTING CRE PRICE RECOVERY: According to a separate report issued by the Mortgage Bankers Association (MBA), the Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, mortgage originations for commercial/multifamily property increased a hefty 16% in the fourth quarter of 2013 from the same period one year earlier. The MBA survey also indicated increased interest among lenders in secondary property types and markets. Originations for retail and office properties were up sharply, while multifamily originations were flat in the fourth quarter of 2013 versus a year earlier.
  • DISTRESS SALES FALLING RAPIDLY: Despite the slowdown in January 2014, the number of observed trades over the last 12 months increased by 14.3% over the prior 12-month period. Importantly for the pricing indices, the number of distressed sales has declined by 21.8% over that same period. As of January 2014, the percentage of total observed pair counts classified as distress sales fell below 10%, down sharply from a peak of 35% in October 2010. Rising occupancies have helped stabilize NOIs across a growing number of markets leading to a large net reduction in the number of forced sales. This trend has been a positive force for commercial real estate pricing.
  • GAP BETWEEN BUYERS AND SELLERS CONTINUES TO NARROW: The number of days on market for commercial property has consistently declined over the last year, falling from 432 days in January 2013 to about 417 days in January 2014. Also consistent with the positive pricing trends, the gap between asking and actual sale prices closed by more than one percentage point over the same period. However, while these indicators show improvement, buyers and sellers still remain far apart relative to historic averages, suggesting that there is further room for liquidity to increase in 2014.
  • SELLERS KEEPING PROPERTIES ON THE MARKET: The number of properties withdrawn from the sales market by discouraged sellers is leveling off. In January 2014, the rate at which properties were withdrawn from the market declined 3.1% from the same period last year.
  1 Month Earlier 1 Quarter Earlier 1 Year Earlier Trough to Current
Value-Weighted U.S. Composite Index -0.6% 0.8% 10.6% 52.2% 1
Equal-Weighted U.S. Composite Index 1.0% 2.7% 12.2% 20.3% 2
      U.S. Investment Grade Index 1.3% 2.8% 17.5% 33.3% 3
      U.S. General Commercial Index 1.0% 2.5% 10.9% 18.2% 4
1 Trough Date: January, 2010   2 Trough Date: March, 2011   3 Trough Date: October, 2009   4 Trough Date: March, 2011
 
Monthly Liquidity Indicators, Data through January of 2014 1
  Current 1 Month Earlier 1 Quarter Earlier 1 Year Earlier
Days on Market 417 419 420 432
Sale Price-to-Asking Price Ratio 88.2% 88.0% 88.1% 86.8%
 Withdrawal Rate 40.3% 40.0% 40.7% 41.6%
         
1 Average days on market and sale price-to-asking price ratio are both calculated based on listings that are closed and confirmed by CoStar Group's research team. Withdrawal rate is the ratio of listings that are withdrawn from the market by the seller relative to all listings for a given month. 

Several charts accompanying this release are available at http://media.globenewswire.com/cache/9473/file/25147.pdf

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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