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Have Commercial Real Estate Prices Bottomed Out?

November 5, 2010 Leave a comment Go to comments

CoStar Commercial Repeat-Sale Indices, October 2010

Investment grade real estate continued its positive pricing trend from August with a strong 5.48% increase in September based on the just-released CoStar Commercial Repeat-Sale Indices (CCRSI).

  • For the first time since the second quarter of 2007, the four primary property types within the commercial real estate repeat sales index showed an increase in pricing in the third quarter.


  • The CoStar investment grade real estate index remains down 4.89% from the same period last year, and down 29.08% from two years ago. However, for the third quarter, the investment grade real estate index increased 5.46%. This is a significant reversal from the previous quarter, as the investment grade real estate index was down 3.24%. The CoStar investment grade index is therefore showing positive price movement quarter over quarter.


  • Conversely, the Moody’s/REAL Commercial Property Price Index


  • (CPPI) reported a decline of 3.3% for August 2010, while CoStar’s investment grade index reported increases in August and again in September. The Moody’s CPPI August release triggered a number of “doom and gloom” stories in the media, just as CoStar’s commercial repeat sales index reported CRE sales figures heading in a positive direction.


  • Investors, lenders and the media will undoubtedly want to understand why the two indices, which track similar property types, are providing such different views of investment grade real estate pricing.

Only CoStar’s index can also track transactions below $2.5 million

  • CoStar’s index is the only repeat-sale index that measures price


  • movements for transactions below $2.5 million. For the investor who wants to see the entire market, not just a segment, being able to track the pricing movements of the entire market is critical. The CoStar index that takes into account property sales below $2.5 million is referred to as the general commercial real estate index.


  • The general commercial real estate index continued its quarter to quarter fluctuations, most recently reversing the negative price trends from the second quarter and turning positive once again in the third quarter.


  • In the third quarter general commercial real estate index increased 2.29% for the quarter with a positive 3.68% increase for the month of September. The general real estate index is down 7.38% from a year ago and down 20.99% from two years ago. However the general commercial real estate index has shown less volatility than the investment grade property index.


  • In the past quarter, of the four major CRE categories, the US multifamily index moved up the most with a positive 8.98% increase, with the office index increasing 6.08%, followed by the retail index increasing 5.56%. The industrial index remained mostly flat with a slight increase of 0.49% for the quarter. The increase in retail property represents a huge reversal of prior trends in that category, but retail property is still down 8.25% from a year ago.


  • Most of the top ten markets moved in the same direction as the property category trends showing the current capital appetite preference for larger markets. The index for the top ten office markets was up 13.37% for the quarter, the index for the top ten multifamily markets was up 7.91% and the index for the top ten retail markets was up 5.61%, but the index for the top ten industrial markets was down 9.17%, suggesting the larger industrial markets are seeing more distress than the smaller industrial markets.


  • By region, the Midwest index was up the most with a 6.27% increase for the quarter led by multifamily and industrial, but showing weakness in the office market prices. The Northeast was up 4.06% for the quarter, led by office and retail, but showing softening in industrial and multifamily. The West was up 3.42% for the quarter, led by multifamily gains, and the South was up 2.24% overall, led by office and retail gains.


  • Sales transaction dollar volumes used to calculate our September indices were up slightly for investment grade and were stable for general commercial real estate.

National Composite Monthly Indices

2010-10 National Composite Monthly Indices

Comparison Table for Current Release (ending 9/30/2010)

2010-10 Comparison Table Current Release


The CCRSI October report is based on data through the end of September, 2010. In September 574 pair sales were recorded compared to 611 sales pairs from August. Typically we receive additional data that adds a few percent to the numbers from 2 months ago and up to 12% more data from one month ago, so it appears that sales volumes are stable. This volume is up from a year ago in September when we saw 513 sales pairs. The general volume appears down while the investment grade (institution grade below) was up for the month. We revise the figures for the last three months but note that very little revision is necessary for data older than the last month and even for those from the prior month our revisions are usually modest, never yet changing direction. Figures older than 3 months will not be revised.

Overall, there has been an upward trend in pair volume going back to 2009. January 2009 appears to have been the low point in the downturn in terms of pair volume, when 376 transactions were recorded. Since then, pair dollar volume has increased overall and the average deal sizes for both general and investment grade have increased.

Distress continues to be a significant factor in the index results. Since 2007, the ratio of distressed sales to overall sales has gone from around 1% to about 22% currently.

Number of Repeat-Sale Transactions

2010-10 Number Of Repeat Sale Transactions

2010-10 Top Ten Metro Areas table

National Property Type Quarterly Indices Through September of 2010

2010-10 National Property Type Quarterly Indices

U.S. Regional Quarterly Indices Through September of 2010

2010-10 US Regional Quarterly Indices

Office Top 10 Metros Quarterly Indices

2010-10 Office Top 10 Metros

Retail Top 10 Metros Quarterly Indices

2010-10 Retail Top 10 Metros

Multifamily Top 10 Metros Quarterly Indices

2010-10 Multifamily Top 10 Metros

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