Commercial Real Estate Values? Depends On Where & What

The latest release of CoStar’s Commercial Repeat Sales Indices (CCRSI) finds significant variations in pricing performance between different regions and property types. The pricing variations are being driven both by investor preferences and significant differences in levels of distressed sales volume.While national-level pricing data masks these critical underlying differences in pricing performance, they are readily apparent in CoStar’s Repeat Sales Indices, which provide some of the most comprehensive benchmarks for tracking and analyzing price movements within commercial real estate.The newly released¬†Commercial Repeat-Sale Indices¬†(CCRSI) April 2011 report is based on data through the end of February 2011.Examples of significant variations in pricing performance include the following:

    • Multifamily pricing in the Northeast at the end of 2010 stood within 4.8% of its peak level according to CoStar’s Northeast Multifamily pricing index.
    • At the other end of the spectrum, CoStar’s West Office pricing index remains 43% below its peak-pricing level.
    • On a composite level, the Northeast Composite pricing index also outperformed the rest of the country, standing 14.2% below its peak level, while the West Composite pricing index remained down 36.9% from its peak-pricing level.
  • During the last 12 months, distressed sales comprised 14% of total commercial property sales in the major Northeast markets, while the level of distressed sales was a much higher 25% for major markets in the West region.

“The latest results indicate that the markets are still volatile from month-to-month which is to be expected at this point in the cycle,” said Chris Macke, CoStar senior real estate strategist. “It is easy to forget where we recently were in terms of pricing performance and that this volatility is much more desirable than the clear downward trend of prices previously experienced.”

“Additionally, much as the average temperature of the U.S. as a whole masks the significant differences in temperatures across the country, the national pricing index figures mask the significant underlying differences in pricing by region and property type,” Macke added.

At the national level, CoStar’s Investment Grade Commercial Repeat-Sale Index is up 6.8% compared with the same period last year, even after four consecutive months of declines, including a very slight 0.3% decline in February.

The Investment Grade pair count (total number of repeat sales) is up 18.3% year over year, although the February pair count decreased 19% from January’s pair count total.

CoStar’s General Grade Index is down 10.9% compared with the same period last year, although this pricing index has trended upward recently, posting two consecutive months of increases, including a strong 0.8% increase from January to February.

The General Grade pair count for February 2011 is 10.7% higher than the pair count total in January and up 19.9% year over year.

The composite Index, which is an equal-weighted analysis repeat sale pricing index incorporating both the Investment Grade and General Grade indices and a reflection of the broad overall market, posted a slight increase in property value for the month of February of 0.6%, reflecting the strong monthly increase in the General Grade repeat sale index. The composite Index is down 7.5% year over year. (credit, m, heschmeyer,co-star)