CRE Pricing Measures Diverge

Commercial property price indexes diverged in early 2016 as Moody’s and Real Capital Analytics observed price declines while Green Street Advisors and CoStar saw slight price increases.

The Moody’s/RCA Commercial Property Price Index’s broadest measure slipped 30 basis points in January, its first decline since early 2010. Moody’s and RCA measure price changes based on completed sales of the same properties.

“Commercial property price growth in the U.S. has paused six years into the post-crisis recovery,” said Moody’s Director of Commercial Real Estate Research Tad Philipp. “We consider this a significant milestone that signals that a shift in sentiment among commercial property investors is underway.”

The decline came from an 80 basis point decrease in core commercial prices over the past three months, Philipp said. Office and industrial property prices each fell by more than one percent in January.

But Philipp said apartment property prices continue to rise, with prices up 70 basis points in January and 2.7 percent over the past three months.

Real estate research firm Green Street Advisors, Newport Beach, Calif., said its Commercial Property Price Index increased one percent in February but noted that property appreciation slowed “materially” from last year’s pace as cap rates flattened out over the past few months.

“There’s been a slowdown in activity, but cap rates–at least for well-located properties–appear to be holding their ground,” said Green Street Advisors Senior Analyst Peter Rothemund.

Rothemund noted reason for concern that lower-quality assets could be harmed by turmoil in the commercial mortgage-backed securities market in the future, “but hard evidence of a downturn in pricing has yet to appear,” he said.

CoStar, Washington, D.C., also reported that commercial price growth moderated in January. Both its value-weighted and its equal-weighted indexes slowed from late 2015’s “robust” pace, CoStar said. The firm’s value-weighted index increased by 60 basis points while its equal-weighted index, which reflects smaller transactions, declined by 30 basis points in January. Both indexes posted 80 basis point average monthly growth between October and December 2015.