CRE Pricing Cools in Most Sectors

Though commercial real estate pricing indexes remained largely steady in July, some sectors saw quite different results.

Peter Rothemund, Senior Analyst with Green Street Advisors, Newport Beach, Calif., noted the firm’s price index was essentially unchanged in July. The index, which measures values across the five major property sectors, has “plateaued” over the past year and a half and remains at year-end 2016 levels, he said.

“It used to be that a rising tide was lifting all boats, but over the past couple of years there’s been a large divergence in the performance of hot and cold property sectors,” Rothemund said. “Values of industrial properties, manufactured home parks and student housing are up 15 percent and more over those two years, while prices of shopping centers and malls have declined significantly.”

Price appreciation in other sectors has been “modest,” Rothemund said.

Elizabeth Szep, Manager of Analytics with Real Capital Analytics, New York, said suburban office price growth continues to diverge from central business district office pricing. Suburban office prices rose 1.1 percent in June, the fastest monthly growth rate among property types. Retail sector price growth was flat for the month and apartment prices grew 1.0 percent, the second-fastest monthly rate among property types.

“Industrial prices declined in July but are on par with national growth on an annual basis,” Szep said. “Tepid growth in non-major metros dragged down the sector’s price gains; this is likely a blip and not a trend.”

Szep noted overall commercial real estate price growth slowed to 0.4 percent in June, a lower rate of increase than earlier in the year. RCA’s pricing index rose 6.5 percent year-over-year, also a slower pace than seen earlier in the year.

CoStar, Washington, D.C., reported overall transaction volume fell 0.5 percent between the 12-month period ending in June and the 12-month period that ended in June 2017. But the lower end of the sales market had more momentum in terms of sales volume, CoStar’s Composite Price Index report said. Composite pair volume increased 7.7 percent in the report’s general commercial segment and declined 3.5 percent in the higher end investment-grade segment in the 12 months ending in June compared to the previous 12-month period that ended in June 2017.