This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at September 2013 commercial real estate pricing. Based on 1,187 repeat sales in September 2013 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.
September 2013 CCRSI National Results Highlights
CRE PRICES POST MODEST QUARTERLY GAINS DESPITE SEPTEMBER LULL: After posting modest gains throughout the third quarter of 2013, price growth for commercial property was mixed in September, reflecting the uncertainty that existed over economic policy and an uptick in interest rates. 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—saw little movement for the month. The value-weighted index, which is influenced by larger transactions, expanded by 0.3% in September while the equal-weighted index, which reflects more numerous smaller transactions, dipped by 0.6% in September. However, both indices posted modest gains in the third quarter of 2013, and advanced 8.4% on an annual basis.
PRICE GROWTH ACCELERATING IN SECONDARY REGIONS AND PROPERTY TYPES: With pricing for multifamily assets in the Northeast and West regions approaching peak or near-peak levels, investors have continued to expand their search for yield beyond core gateway markets, leading to stronger price gains in the office, retail and industrial sectors in other regions, including the Midwest region. After bottoming more than a year later than in the other regions, the Midwest Composite Index has advanced by 15.7% from its trough in mid-2012, buoyed by impressive pricing growth in the multifamily and retail sectors.
CAPITAL FLOWS REMAIN STRONG: The recovery in market fundamentals and firming of property values has fueled transaction activity by giving lenders more confidence to make deals. This in turn has boosted U.S. composite pair volume, which tallied nearly $60 billion year-to-date as of the third quarter of 2013, an increase of 20% from the same period last year. In addition, capital sources, including a restored CMBS market, banks and life insurers are increasing their CRE lending volumes, joining the government-sponsored enterprises (GSEs) that have provided the primary financing support to date.
DISTRESS SALES CONTINUE TO WANE: The percentage of commercial property selling at distressed prices dropped to 11.6% in September 2013 from more than 24% one year earlier, enabling banks and other lenders to focus on growth opportunities. The multifamily sector recorded the lowest level of distress in the third quarter of 2013 at 9.5%, which is a cumulative 77% decline from peak levels reached in 2010. The share of distress deals in the other property types ranges from 12.1% in the industrial sector to 15.8% in the office sector. On a regional basis, distress levels have largely worked through the system in the Northeast, with just 7.1% of deals selling at distressed prices, while the Midwest has the furthest to recover with over 23% of property still selling at distressed levels.
About the CoStar Commercial Repeat-Sale Indices
The CoStar Commercial Repeat-Sale Indices (CCRSI) are the most comprehensive and accurate measures 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).
The CoStar indices are constructed using a repeat sales methodology, widely considered the most accurate measure of price changes for real estate. This methodology measures the movement in the prices of commercial properties by collecting data on actual transaction prices. When a property is sold more than one time, a sales pair is created. The prices from the first and second sales are then used to calculate price movement for the property. The aggregated price changes from all of the sales pairs are used to create a price index.