CoStar: Price Growth Moderates From Previous Two Years

Commercial property price growth slipped in December, falling 1.3 percent, reported CoStar, Washington, D.C. 

But price growth remained in positive territory for the fourth quarter and made “solid advances” for the year, CoStar said.

“The December 2016 results reflected a deceleration in transaction activity at the end of the year from the record-setting pace set in 2015,” CoStar said, noting that its equal-weighted index of smaller property sales rose 6.6 percent and the value-weighted U.S. Composite Index rose 6.8 percent for full-year 2016.

CoStar said all major property types posted price gains in 2016. “This marks the fifth consecutive year in the market cycle recovery with positive gains across the spectrum,” the report said. “However, 2016 also saw a marked deceleration in growth rate from the pace of the previous two years when most property-type and regional indices grew at a double-digit rate. The slowdown in the pace of pricing growth from the previous two years was most apparent in the U.S. Industrial index.”

The South emerged as the best-performing region in 2016 with a 5 percent price increase, CoStar noted. “Lacking a concentration of core coastal markets that led other U.S. regions in the recovery, the South index lagged behind both the West and Northeast indexes through much of the last several years. However, strong demographics and comparatively lower pricing helped to propel the South index upward at a faster rate than other regions in 2016,” the report said.

By comparison, the Northeast and West regions–which had already surpassed their previous highs–grew 3.9 percent and 3.5 percent, respectively, in 2016, CoStar noted. “The Midwest regional index continued to lag behind all other regions with flat growth in 2016,” the report said.

Moody’s and Real Capital Analytics, New York, found slightly different results in its pricing report. “Prices continue to grind higher, for now,” the Moody’s/RCA Commercial Property Pricing Index report said.

The report noted the recent uptick in the 10-year Treasury rate, uncertainty about key government policy initiatives and slowing transaction volume, which they called typical market shift indicators. “But there is little evidence of their impact on price trends, so far,” it said.

Apartment property prices increased 1.0 percent in December and core commercial property prices increased 1.2 percent, Moody’s/RCA said. “All major market sectors except suburban office have topped their pre-crisis peak,” the report said, noting that suburban office properties remain just 1.7 percent below that sector’s pre-crisis peak. Industrial and central business district office properties performed best over the past 12 months, up between 12 and 13 percent.