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Latest CoStar Commercial Repeat Sale Analysis: Strong Market Fundamentals Support Broad Price Gains In May

Stocks in this article: CSGP

WASHINGTON, July 16, 2014 (GLOBE NEWSWIRE) -- This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at May 2014 commercial real estate pricing. Based on 1,282 repeat sales in May 2014 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

CCRSI National Results Highlights

  • COMMERCIAL REAL ESTATE PRICES POST DOUBLE-DIGIT ANNUAL GAINS 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 0.9% and 1.2%, respectively, in the month of May 2014, and 11.4% and 11.7% respectively, year over year, reflecting a broad improvement in market fundamentals seen across all property types. The value-weighted U.S. Composite Index, which is heavily influenced by core property transactions, has now risen within 1% of its prerecession peak level reached in 2007, while its equal-weighted counterpart, which is more influenced by smaller non-core property sales, has recovered to within 20% of its 2007 high water mark.
  • MOMENTUM PICKS UP IN THE GENERAL COMMERCIAL SEGMENT: Within the equal-weighted U.S. Composite Index, the U.S. General Commercial Index, which includes lower-tier properties, advanced by 12.7% for the 12-month period ended in May 2014, while the U.S. Investment Grade Index, which broadly encompasses upper-middle tier properties, expanded by 7.0% for the same time period. As pricing for core assets has continued to rise, investment activity has moved further out on the risk spectrum to include a broader scope of markets and property types, which has pushed up pricing at the low end of the market.
  • IMPROVEMENTS IN MARKET FUNDAMENTALS UNDERPIN GROWTH IN COMMERCIAL PROPERTY PRICING: Net absorption for the three major property types – office, retail, and industrial – climbed to 369.5 million square feet for the year ending in the second quarter of 2014, an increase of 1.6% from the prior 12-month period. Although the most recent annual absorption total is still just 60% of annual demand gains posted in 2007, it was enough to lower vacancy rates below the trailing 10-year average for the office and retail sectors, while the average vacancy for the industrial sector is now below pre-recession levels. Reflecting recent movements in pricing at the low end of the market, net absorption in the General Commercial segment increased by 9.8% for the year ending in the second quarter of 2014, compared with a decline of 1.5% in the Investment Grade segment.
  • CAPITAL FLOWS REMAIN HEALTHY: Improving market fundamentals are supporting strong capital flows to the commercial property sector as evidenced by the steady increase in repeat-sale transaction activity. Composite pair volume of $31.1 billion through the first five months of 2014 marked a 25% increase from the same period in 2013.
  • DISTRESS LEVELS CONTINUE TO DISSIPATE: The percentage of commercial transactions involving distressed assets has declined to 10.5% in May 2014 from over 17% one year earlier. In the multifamily and industrial sectors, the distress share of total sales fell into the single digits, while it remains comparatively high at 11% in the retail sector and 17% in the office sector, suggesting there is more room for pricing appreciation.  The share of distress trades in late-recovery markets such as Chicago, Atlanta, and Detroit remain near 20%, while in the early-recovery, coastal markets of Los Angeles, San Francisco and San Jose, distress levels are nearly non-existent.
Monthly CCRSI Results, Data through May of 2014      
  1 Month Earlier 1 Quarter Earlier 1 Year Earlier Trough to Current
Value-Weighted U.S. Composite Index 0.9% 4.0% 11.4% 60.0% 1
Equal-Weighted U.S. Composite Index 1.2% 1.6% 11.7% 24.5% 2
 U.S. Investment Grade Index -0.7% -0.1% 7.0% 36.9% 3
 U.S. General Commercial Index 1.9% 2.0% 12.7% 22.1% 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 June of 2014        
  Annual Net Absorption (in millions of square feet)
  2011Q2 2012Q2 2013Q2 2014Q2
Aggregate  264.1 301.1 363.8 369.5
Investment Grade  184.1 197.4 265.1 261.1
General Commercial  79.9 103.7 98.7 108.3
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

About the CoStar Commercial Repeat-Sale Indices

The CoStar Commercial Repeat-Sale Indices (CCRSI) is the most comprehensive and accurate measure 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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