CRE Price Growth Slips

U.S. commercial real estate prices slipped in December to the slowest annual growth rate since 2012, said Real Capital Analytics, New York.

RCA Analytics Manager Elizabeth Szep said the firm’s National All Property Index rose 6.2 percent from a year prior, down significantly from the 8.5 percent growth rate seen in early 2018.

“Monthly price gains also edged lower,” Szep said, noting prices rose just 0.3 percent in December compared to 0.5 percent on average for the first 11 months of the year.

Analyzing properties owned by real estate investment trusts, Green Street Advisors, Newport Beach, Calif., reported “modest” price growth for the year–and no growth in December.
The Green Street Commercial Property Price Index increased 2 percent during 2018, Green Street Advisors Managing Director Peter Rothemund said.

“Property appreciation was almost nonexistent in the second half of 2018 as most properties saw only slight changes in price,” Rothemund said. He noted one exception: manufactured home community prices rose more than 10 percent over the past six months. “On the other hand, mall values continued their downward slide,” he said.

Szep said apartment assets saw the highest annual price growth among property types at 8.9 percent year-over-year, “albeit slowed from the double-digit pace set at the start of 2018,” she said. “Price increases in the apartment sector have been driven by gains in secondary and tertiary markets since 2016.”

Suburban office property price growth represented the year’s biggest surprise, Szep said. They registered year-end growth second only to apartments at 8.2 percent year-over-year, almost double the rate seen at year-end 2017.

Industrial properties also logged strong growth by increasing 7.9 percent for the year, RCA reported. “This comes as no surprise as investors continue to flock to the sector to buy their position in the national supply chain,” Szep said. “The volume of industrial property sales in 2018 was greater than any year since Real Capital Analytics began tracking property markets.”

Across property types, prices are now 26 percent above their peak prior to the Global Financial Crisis, Szep said. “However, when taking inflation into account, growth is more modest at 4 percent above those 2007 highs,” she said.

CoStar, Washington, D.C., called overall transaction activity “elevated” for the year. Composite pair volume reached $144.7 billion in 2018 despite moderating sale prices, up 10 percent from 2017, the research firm’s Commercial Repeat Sale Index said.

The lower end of the commercial property market had slightly more sales activity momentum than among higher-end assets, CoStar reported.