CRE Sales Surge In 2012 As Pricing Recovery Spreads To More Markets

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Aided By Improved Liquidity and Buoyed By Improving Conditions, Investors Move Into Other Property Types and Into More Markets Driven by Multifamily Gains

February 13, 2013
Sales of U.S. commercial real estate reached nearly $64 billion in 2012, jumping 22% from the previous year to the highest annual total since 2004, according to the latest findings from the CoStar Commercial Repeat Sale Indices (CCRSI). Although the increase in sales volume reflects the subset of sale-pairs included in the CCRSI analysis and not the commercial real estate market at large, it does indicate the positive growth in the overall sales volume trend.

The analysis of sales data through December caps a year in which the recovery in CRE pricing rippled beyond the apartment market into office, industrial and even retail property, to a greater or lesser extent. Meanwhile, the level of distressed property sales fell to just 11.5% of transactions noted in December 2012, the lowest level since the end of 2008, which also helped put a solid foundation under prices.

Even commercial land prices showed signs of recovery in the last quarter of 2012, mostly due to strong developer demand for apartment sites. The CCRSI Land Index gained 3.6% in the last quarter of 2012, although it still remains 39.9% below the frothy December 2007 peak.

Capping a steady increase over the past four years, sales activity spiked in December as investors hustled to close deals prior to year-end, driven in part by concern over anticipated tax hikes and the restoration of previous tax rates for capital gains.

Pricing and market fundamentals of larger, more expensive Four- and Five Star office, apartment and big-box warehouse properties located in prime markets were the first to recover. With increased competition and smaller yields now found in the upper end of the market, however, gains in the value-weighted U.S. Composite Index — which began earlier in the recovery — are expected to moderate after years of stronger gains relative to smaller and lower-end properties, represented by the equal-weighted U.S. Composite Index.

Investment momentum now appears to be shifting to the broader market dominated by smaller, less-expensive properties. The value-weighted U.S. Composite Index gained 4.3% year-over-year gain in December 2012, slowing from the double-digit growth rate throughout 2011.

Year-over-year growth in the equal-weighted U.S. Composite Index took off in the second half of last year moved up to 8.1% for 2012.



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