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Latest CoStar Commercial Repeat Sale Analysis: Major Real Estate Price Indices Advance In First Quarter

WASHINGTON, May 14, 2014 (GLOBE NEWSWIRE) -- This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at March 2014 commercial real estate pricing. Based on 1,191 repeat sales in March 2014 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

March 2014 CCRSI National Results Highlights
  • BROAD PRICING INDICES MOVE UPWARD IN 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 — each finished the first quarter of 2014 on a positive note. The U.S. equal-weighted index, which represents lower-value properties, has the most momentum in early 2014, with pricing up 4.2% for the first quarter of 2014 and 17.1% year-over-year. Meanwhile the U.S. value-weighted index, which is more heavily weighted toward larger, higher-value properties, has already recovered to within 5% of its prior peak levels. As a result, pricing gains in the value-weighted Composite Index have slowed, advancing by a more modest 0.5% for the first quarter and 10.1% for the year ending in March 2014.  
  • GENERAL COMMERCIAL SEGMENT LEADS GROWTH IN EQUAL-WEIGHTED INDEX: Within the equal-weighted U.S. Composite Index, the General Commercial segment, which generally encompasses smaller deals typical of secondary and tertiary markets, made its strongest annual pricing gain since the recovery began. It advanced by 17.2% over the 12 months ended March 2014, reflecting continued investor interest in non-prime markets. Its Investment Grade counterpart advanced by 14.9% in the same time period.   
  • TIGHTENING FUNDAMENTALS ACROSS PROPERTY TYPES BOLSTER CONTINUED PRICING GAINS: In the office and retail property sectors, vacancies have fallen to within 100 basis points of pre-recession levels. In the industrial property sector, vacancies now sit lower than pre-recession levels. Demand growth has been modest compared with that in the previous cycle, but at the same time, lackluster absorption has kept new development in check, allowing vacancies to continue to compress. The exception to these trends is the apartment market, where demand swelled early and new supply has not only caught up to, but recently exceeded gains in absorption.  Continued strength in market fundamentals is reflected in recent pricing gains in the major property type indices, with the strongest growth over the last year found in the retail and industrial sectors.   
  • STRONGEST ANNUAL PROPERTY PRICE GAINS FOUND IN THE WEST: For the most recent 12-month period ended March 2014, the West Regional Index advanced 13.6%, the strongest annual gain among the four major regions. Pricing for multifamily properties has increased to within 4% of the previous peak, while the office, retail and industrial indices in the West region each posted double digit gains over the 12-month period ended March 2014. Robust investor demand for core industrial markets has made the West Industrial Index a standout, leading all the regional property type indices with 17.4% annual growth for the same 12-month period.  
  • FIRST QUARTER SALES VOLUME UP 33% FROM THE SAME PERIOD ONE YEAR AGO: Transaction activity picked up in March 2014, contributing to a composite pair volume of $16 billion in the first quarter of 2014. While the first quarter is typically the weakest in terms of investment volume, first quarter 2014's total was still 33% higher than total transaction activity in the first quarter of 2013, suggesting that capital flows should be strong this year. The percentage of commercial property selling at distressed prices has also fallen by more than two-thirds from the peak levels reached in 2011, to just 10% of all composite pair trades in the first quarter of 2014. 
Monthly CCRSI Results, Data through March of 2014  
  1 Month Earlier 1 Quarter Earlier 1 Year Earlier Trough to Current
Value-Weighted U.S. Composite Index -0.1% 0.5% 10.3% 53.7% 1
Equal-Weighted U.S. Composite Index 1.4% 4.2% 17.1% 23.6% 2
 U.S. Investment Grade Index 1.7% 4.5% 14.9% 37.3% 3
 U.S. General Commercial Index 1.1% 3.8% 17.2% 21.6% 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
  • The commercial real estate recovery remains strong, and nearly every property sector demonstrated pricing gains in the 12 months ended March 2014. Given the recent run-up in pricing in many core markets over the last couple of years, the Prime Markets Indices have advanced at a slower rate than the overall market for the 12 months ended March 2014.  
  • Investors have increased retail property purchases, pushing up prices. The Retail Index is up 25% from its recessionary low and 14.9% for the 12 months ended in the first quarter of 2014, the strongest annual gain among the major property sectors. However, even with the recent jump, retail pricing is still at 2005 levels, suggesting there may be further runway in the recovery for this property type. The overall market outperformed the Prime Retail Metros Index over the last year indicating that investors are branching out beyond well-leased malls and infill retail in the primary markets. With the supply of available retail properties low across the board, markets with outsized demographic and economic growth, such as Austin, Charlotte and Denver, have posted above-average pricing gains over the 12 months ended March 2014.  
  • The industrial property recovery has broadened across the size and quality spectrum. Over the last four calendar quarters, even the smallest industrial buildings, those measuring less than 50,000 square feet, benefited from net move-ins, along with the larger, modern logistics buildings that have led the recovery. As a result, industrial vacancies have compressed across the board and now sit at levels not seen since 2001. Pricing gains broadly reflected the movement in market fundamentals, as the Industrial Index advanced by 11.5% for the year ended in the first quarter of 2014, driven by a 9.7% gain in the Primary Markets Index, and has advanced 20.1% from its trough in 2012.  
  • The Multifamily Index continued to post steady growth, advancing by 7.8% for the 12 months ended March 2014, even though pricing in the Prime Metros Index has surpassed its previous peak set in 2007 by 10%. Pricing in the overall Multifamily Index is now within 8% of its pre-recession peak. Given the steep competition and pricing for Class A assets in prime metro areas, recent pricing gains likely reflect shifting investor interest to Class B properties in primary markets and higher quality properties in secondary and tertiary markets.  
  • Office prices increased 6.2% in the 12 months ended March 2014 as office-employment growth continued to outpace overall employment growth, and construction levels remained low. Pricing has already surpassed prior peak levels in primary markets including New York and San Francisco, which has put downward pressure on the Prime Office Metros Index, which fell 1.8% for the 12 months ended March 2014. As with other property types, investor interest in non-primary markets has increased, with office sales up nearly 30% from historical average levels in markets including Austin and Nashville for the 12 months ended March 2014. As of the first quarter 2014, the Office Index had increased 15.3% from its market nadir in early 2011.  
  • The Hospitality Index declined by 2.3% in the 12 months ended March 2014, reflecting a slowdown in revenue per available room (RevPAR) growth and occupancies following the robust post-recession bounce-back in 2010-11. The hospitality index has recovered 23.2% from its nadir in 2009.  
  • The Land Index also continued its slow recovery. Demand for multifamily development sites and a resurgent housing market supported gains of 7.2% from its trough in 2012 through the first quarter of 2014.

Quarterly CCRSI Regional Results
  • The Northeast Composite Index experienced the shallowest downturn in terms of property pricing, thanks its strong concentration of top-tier markets that have been a magnet for investment early in the cycle. As of the first quarter of 2014, pricing rebounded to within 7.2% of the prior peak reached in 2008. This robust pricing performance can be largely attributed to the strong rebound in the Northeast Multifamily Index, which has soared 14% over the prior peak pricing level. In markets such as New York and Boston, pricing has also reached new historical highs for office and retail property assets. As a result, price gains in the Northeast Composite Index have naturally slowed, increasing 3.2% for the most recent 12-month period through March 2014, the weakest among the four U.S. regions. The Northeast Office Index, which was at the forefront of the recovery, moved up only 3.3% for the 12 months ended March 2014, the weakest annual gain among the regional property indices.   
  • The West Composite Index posted the strongest gain among the four major regions in the 12-month period ended March 2014, advancing 13.6%. A broad-based recovery has led to double-digit growth in the West's office, retail and industrial segments, while the multifamily segment, which had the strongest performance earlier in the recovery, gained 6.2% for the 12 months ended March 2014. Robust investor demand for multifamily assets in such tech-driven markets as Seattle, San Francisco and San Jose have helped the West Multifamily Index recover to within 4% of its prior peak level. Meanwhile, investor demand remains equally strong for assets located in core industrial markets such as Los Angeles and the Inland Empire. The West Industrial Index advanced 17.4% in the 12 months ended March 2014, the largest annual gain among all the regional property type indices.  
  • Price gains in the South Composite Index accelerated 9.8% in the 12-month period through March 2014, driven largely by a strong performance in the retail and industrial property segments. Healthy population growth and a resurgent housing market have attracted investors and helped fuel gains in the South Composite Index over the last 12 months.  The South Retail Index advanced by 12.0% and the industrial index moved up by 10.1% in the 12 months ended March 2014.  
  • The Midwest Composite Index has had the slowest recovery of the four regions with prices finally hitting bottom in 2012, falling more than a year longer than the other regions. Increased investment activity into secondary markets has helped to drive the late recovery in the Midwest, and, since the 2012 recessionary low, pricing has rebounded 21.4% with gains of 8.9% for the 12 months ended March 2014. The industrial and multifamily property sectors continue to lead recent gains in the Midwest region, while weak demographic trends are weighing more heavily on investor interest and pricing in the office and retail sectors.

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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