U.S. Commercial Real Estate Market Posts Record Gain

by KW Calabasas on General February 19th has no comments yet!

GLOBE NEWSWIRE — This month’s CoStar Commercial Repeat Sale Indices (CCRSI) provide the market’s first look at December 2012 commercial real estate pricing. Based on 1,593 repeat sales in December 2012 and more than 100,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

December 2012 CCRSI National Results Highlights

• COMMERCIAL REAL ESTATE SALES VOLUME SURGED IN 2012: While rising steadily over the last four years, sales volume reached nearly $64 billion in 2012, a 22% increase from 2011 and the highest annual total since 2004. Activity spiked significantly in December as investors rushed to close deals prior to year-end. In fact, at 1,593, the number of repeat sales in December reached an all-time high since CoStar started tracking the property sales used in the CCRSI. Both the investment grade and general commercial segments were heavily traded as improving market fundamentals and attractive yields relative to other asset classes drove strong investor interest in commercial real estate.

• VALUE-WEIGHTED INDEX PRICING EXPECTED TO MODERATE: Pricing gains in the value-weighted U.S. Composite Index began earlier in the recovery and have been consistently stronger than pricing gains in its equal-weighted counterpart throughout much of the recovery. This reflects the more rapid recovery at the high end of the market for larger, more expensive properties. It also mirrors the trend in the recent recovery of market fundamentals for commercial property, in which demand for Four-Star and Five-Star office buildings, luxury apartments and modern big-box warehouses has outpaced the broader market. However, pricing trends suggest this may be shifting.

• RECOVERY BROADENS TO LOWER END OF THE PRICING MARKET: Despite the recent dominance of larger, more-expensive properties in pricing gains, momentum appears to be shifting to the broader market dominated by smaller, less-expensive properties. This shift is apparent in the value-weighted U.S. Composite Index, which posted a 4.3% year-over-year gain in December 2012, slowing from its double-digit growth rate throughout 2011. At the same time, year-over-year growth in the equal-weighted U.S. Composite Index accelerated in the second half of 2012 and registered 8.1% for the year. Taken together, the two trends signify that investors are moving beyond core properties and driving up pricing at the lower end of the market.

• NEW MULTIFAMILY CONSTRUCTION RESPONDING TO PRICING GAINS: The multifamily property type index advanced by 11.2% in 2012, well ahead of the other major property types. Within the sector, pricing for the ten markets in the prime multifamily index has regained pre-recession peak levels, reflecting the strong investor interest in the segment of the market that has led the overall recovery in commercial real estate pricing. However, construction is now picking up steam in response to the rapid surge in prices. Twice as many multifamily units delivered in 2012 as in 2011 and construction in 2013 is on pace to rise even further. Meanwhile, modest levels of construction in the other property types indicate that further pricing gains are needed before supply ramps up significantly for property types other than multifamily properties and core markets.

• DISTRESS LEVELS DECLINING: Distressed sales made up only 11.5% of observed trades in December 2012, the lowest level witnessed since the end of 2008. This reduction in distressed deal volume has been driving higher, more consistent pricing.

Several charts accompanying this releas

Comments are closed.