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Latest CoStar Commercial Repeat Sale Analysis: Price Momentum For Commercial Real Estate Continued To Build In February

Stocks in this article: CSGP

WASHINGTON, April 16, 2014 (GLOBE NEWSWIRE) -- This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at February 2014 commercial real estate pricing. Based on 1,028 repeat sales in February 2014 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

FEBRUARY 2014 CCRSI National Results Highlights

  • COMMERCIAL REAL ESTATE PRICES REGISTER BROAD GAINS IN FEBRUARY: 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—gained 1.1% and 1.7%, respectively, in February 2014. Both reached double-digit growth over the previous 12-month period as the pricing recovery extended to smaller markets and secondary property types.
  • VALUE-WEIGHTED U.S. COMPOSITE INDEX HAS RECOVERED TO WITHIN 5% OF ITS PRE-RECESSION PEAK: The value-weighted U.S. Composite Index is more heavily influenced by high-value trades, where pricing has skyrocketed over the last two years. As a result, this CCRSI index has reached levels not seen since early 2008. Meanwhile, the equal-weighted U.S. Composite Index, which is more heavily influenced by lower-value trades, remained 22.3% below its prior peak.
  • PRICING FOR LOW-END PROPERTIES GAINING MOMENTUM: Although still below its previous peak, the equal-weighted U.S. Composite Index, which generally reflects the performance of smaller deals more typical of secondary and tertiary markets, made its strongest annual gain in February 2014 since the current recovery began. It advanced by 15.7% over the last 12 months as investors continued to expand their buying activity in non-prime markets. The momentum shift to lower quality and smaller properties also appeared in the recent growth of the General Commercial segment, which grew by a similar 15.7% over the previous year, while its Investment Grade counterpart advanced by 15%.
  • STRONGER ABSORPTION TRENDS BOLSTERING PRICING GAINS: For the 12-month period from March 2013 through March 2014, net absorption across the three major property types — office, retail and industrial — totaled 378.2 million square feet, a 15.3% increase from the prior 12-month period. Consistent with recent pricing trends, net absorption in the General Commercial segment rose 48% during the same period, compared with a 5% annual gain for the same period in the Investment Grade segment.
  • INDUSTRIAL AND OFFICE SECTORS STAGE STRONGEST ABSORPTION GAINS OVER PAST 12 MONTHS: The industrial property sector experienced positive absorption across the entire size spectrum, and even the smallest buildings (less than 25,000 SF) have had tenant move-ins. In the office sector, suburban properties—less than 75% of total office inventory—accounted for 90% of absorption growth for the 12-month period from March 2013 through March 2014. This strong growth in suburban office demand largely stemmed from industries such as technology that have experienced rapid growth recently. Meanwhile, slower-growth industries such as finance, legal and government dominate most central business district office markets.
  • FIRST QUARTER INVESTMENT ACTIVITY FOLLOWS HISTORICAL PATTERN: Commercial property sales activity during the first quarter typically declines from the previous quarter by about one-third, and this pattern was evident again in 2014. However, despite the slowdown in sales volume from the previous year-end, transaction activity through February 2014 suggests that the year as a whole will be very active for commercial real estate investment. Composite pair volume of nearly $10 billion through the first two months of 2014 has already exceeded first quarter 2013 totals.
  • DISTRESS SALES CONTINUE STEADY DECLINE: The percentage of commercial property selling at distressed prices has fallen by more than two-thirds from peak levels reached in 2011. Over the last three months, distress deals comprised just over 10% of composite pair trades.
Monthly CCRSI Results, Data through February of 2014
  1 Month Earlier 1 Quarter Earlier 1 Year Earlier Trough to Current
Value-Weighted U.S. Composite Index 1.1% 1.2% 12.1% 54.5% 1
Equal-Weighted U.S. Composite Index 1.7% 3.5% 15.7% 22.1% 2
 U.S. Investment Grade Index 1.7% 4.0% 15.0% 35.5% 3
 U.S. General Commercial Index 1.8% 3.5% 15.7% 20.4% 4
1 Trough Date: January, 2010  2 Trough Date: March, 2011  3 Trough Date: October, 2009    4 Trough Date: March, 2011
         
  Market Fundamentals, Data through March of 2014        
  Annual Net Absorption (in millions of square feet)
  2011Q1 2012Q1 2013Q1 2014Q1
Aggregate   232.0  292.8  328.1  378.2
Investment Grade   146.1  196.5  247.8  259.2
General Commercial   85.8  96.3  80.3  119.0
Note: "Net Absorption" is the change in occupied space, calculated based on three types of properties: office, retail, and industrial.
 

Several charts accompanying this release are available at http://media.globenewswire.com/cache/9473/file/25872.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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