CRE Pricing Strengthens As Buyers Expand Targets To Include Smaller Properties, More Markets

 Western Montana Business For SaleCoStar Composite Index: Stronger Absorption, Leasing Translate Into Less Distress And Stronger Pricing Across The Board For Commercial Properties

By Randyl DrummerJanuary 16, 2013
November brought modest improvement to commercial real estatepricing as investors appeared to put the uncertainty — temporarily at least — of the nation’s fiscal issues and U.S. elections behind them.The two broadest measures of aggregate pricing for commercial properties within the CoStar Commercial Repeat Sale Indices (CCRSI), the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index, gained respectively by 0.9% and 1.1% in November.The survey of property pricing for November is based on 929 repeat sales during the month, and more than 100,000 repeat sales compiled by CoStar since 1996, according to the report and its principal author, CoStar Chief Research Officer Dr. Ruijue Peng.

The U.S. Value-Weighted Composite Index, which weights each repeat-sale by transaction size or value and therefore heavily influenced by larger transactions, rose 6.2% over the last year and has now increased 38% from its pricing bottom in 2010.The strong improvement reflects sturdy investor demand for core markets and assets that have been at the forefront of the pricing recovery for commercial property.Within the Equal-Weighted Index, the General Commercial segment saw healthy gains in November over the previous year. The equal-weighted measure weights each repeat-sale equally, reflecting the influence of smaller transactions.

While general commercial pricing bottomed much later than the Investment Grade segment, the smaller property index has made strong gains over the last year and is now up nearly 10% from its nadir in the first quarter of 2011.

Investors are increasingly branching out to second-tier markets and assets as prices for premium assets in top markets have become extremely competitive, the recent gains suggest. That said, the November decline in the investment grade index is mainly a correction of a seasonal surge in sales activity in prior months.