Property Price Growth Picks Up After Slow January

Growth in U.S. commercial property prices increased to 0.6 percent in February from 0.3 percent in January, reported Real Capital Analytics, New York.

RCA noted January’s growth rate represented the weakest annual pace in eight years. After February’s growth, the firm’s National All-Property index is up 6.3 percent from a year ago.

RCA Senior Analyst Wyatt Avery said industrial properties led price growth. The sector posted the largest year-over-year gain, 8.2 percent, just outpacing the apartment sector’s 8.1 percent increase from a year ago.

Central business district offices posted a relatively strong monthly gain of 0.6 percent and year-over-year growth of 2.1 percent. “Suburban office on the other hand has lost its momentum from last year, coming in flat for a third consecutive month,” Avery said.

Retail prices climbed 0.3 percent in February and 2.9 percent year-over-year, RCA reported. “This sector experienced drastic declines in price growth in 2015 and 2016 but has been slowly making up ground since then,” Avery said. “The level of annual growth seen this month was the highest the sector has shown in more than two years.”

Commercial real estate prices in smaller metros continued to outpace the six largest markets, but the gap is narrowing, RCA said. Non-major metros prices were up 6.7 percent year-over-year, while major metro prices increased 4.0 percent.

Looking at properties owned by real estate investment trusts, Green Street Advisors, Newport Beach, Calif., said those prices increased 0.3 percent in February. The REIT index has increased just under 2 percent during the past twelve months.

“The equity markets have been making some noise, but in the commercial property space things have been quiet–pricing has barely moved over the past few months,” said Green Street Advisors Managing Director Peter Rothemund. “With stocks and other risk assets clawing back their fourth-quarter losses, it’s likely that we’ll see more of the same this year.”

CoStar, Washington, D.C., said “moderate” new supply is helping keep commercial real estate market fundamentals in check, which supports continued price growth.

“Driven in part by escalating construction costs related to both land and labor, commercial property development has remained restrained with only moderate supply additions, which has helped keep fundamentals balanced across property types into the late stages of the economic cycle,” CoStar said.

CoStar added nearly 470 million square feet were completed annually in 2017 and 2018 in the office, retail and industrial sectors, nearly 40 percent less than the peak supply levels reached in 2007 and 2008 and less than half of new commercial space completed at the height of the previous cycle in 1999 and 2000.