Commercial Real Estate Pricing Growth Accelerates Beyond Multifamily Sector, Expanding Into Secondary Markets

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CoStar CCRSI Records Strong Across the Board Pricing Gains for Commercial Property in September 2012
November 14, 2012
Pricing for commercial real estate closed out the third quarter with strong gains, according to the CoStar Commercial Repeat Sale Indices (CCRSI).

The two broadest measures of aggregate pricing for commercial properties, the CCRSI’s U.S. Value-Weighted Composite Index and the U.S. Equal-Weighted Composite Index, both posted significant gains in September 2012. The U.S. Equal-Weighted Composite Index increased 9.7% and the value-weighted index rose 8.2%, on a year-over-year basis.

In addition, the Investment Grade and General Commercial indices of the CCRSI both advanced in September, signifying a broadening recovery in commercial property pricing.

The equal-weighted General Commercial Composite Index, which reflects the pricing influence of sales of smaller, less expensive properties, increased by 4.3% in the 3rd quarter 2012, the largest quarterly gain recorded since the start of the recession.

September prices were also up an eye-popping 15.4% from one year earlier in the U.S. Investment Grade Index. With the September increase, the high-end property sector is approaching pricing levels not seen since early 2009.

While the increase partially reflects the larger recovery in property pricing, Chief Research Officer Dr. Ruijue Peng, primary author of the CCRSI, noted that the investment-grade market may also be benefitting from a seasonal pricing pattern observed over the last several years in which investment-grade transaction activity tended to spike during the last few months of the year.

In past years, the corresponding late-year pricing gains in the Investment Grade index receded in the first quarter as deal volume slowed, a pattern expected to repeat itself in 2013.

In other welcome news for CRE investors, distress levels among property sales continued to decline in September. Only 18.1% of observed trades in September 2012 were distressed, a level notably lower than the 28.8% average over the past three years