Double-Digit Property Price Growth Continues

Property prices increased again in October, extending their streak of double-digit year-over-year gains to 33 months, reported Moody’s Investors Service and Real Capital Analytics. 

Both core commercial properties and apartment communities saw 0.4 percent price growth during the month, Moody’s said. 

“This reinforces the vitality in commercial real estate prices: net operating income continues to grow and cap rates continue to compress across most property types driving up repeat sale prices,” said Brian Olasov, executive director of financial services consulting with Carlton Fields Jorden Burt, Atlanta. “As Moody’s notes, the latest numbers represent more than 30 consecutive months of year-over-year gains.” 

Olasov said that even more impressive this late in the cycle, the all-property index is up year-to-year in excess of 14 percent. “That’s not consistent with the ‘late innings’ metaphor that many pundits espouse,” he said. “Six and a half years into the recovery, the data don’t support the view that economic cycles die from old age.”

Apartment community selling prices rose more than 12 percent over the past 12 months and now exceed their pre-crisis peak by more than 33 percent, Moody’s reported. Commercial property prices rose nearly 15 percent over the same period and stand 10 percent above their prior peak. Moody’s said it expects the pace of appreciation to decelerate in the near term, particularly once interest rates start to rise.

Olasov noted that the data show other interesting trends as well, including core commercial price growth outpacing gains in multifamily; central business district offices in major markets “lapping” most other property types in terms of cyclical appreciation and major markets supporting transactional volumes in gateway markets versus non-majors.

The national all-property index now stands 16 percent above the prior 2007-2008 peak, “a sign that the Great Recession is fading from view and memory,” Olasov said.