Commercial Prices Increase, Transaction Volume Down Year-over-Year

Healthy fundamentals and continued strong liquidity are leading to commercial property price gains, analysts said.

Moody’s and Real Capital Analytics, New York, CoStar, Washington, D.C., and Green Street Advisors, Newport Beach, Calif., all said their repeat-sale price indexes rose in July.

Moody’s/RCA’s national all-property composite index rose 0.7 percent. The apartment segment rose 1.2 percent the core commercial property segment rose 0.5 percent during the month.

“The latest increase…reflects rising prices in the core commercial and apartment components,” said Moody’s Director of Commercial Real Estate Research Tad Philipp. “Over the past 12 months price gains in the apartment sector have outpaced those in the core commercial sector.”

Philipp noted that multifamily prices grew 14 percent over the past year compared to 5 percent growth for core commercial prices. Green Street Advisors’ price index increased 1 percent, causing property prices to increase 3 percent this year by its measure.

“The property markets have found equilibrium–cap rates have been pretty flat this year,” said Green Street Advisors Senior Analyst Peter Rothemund. 

But Rothemund noted a few exceptions to that trend. “Self-storage and manufactured home park values have been very strong this year, while lodging and senior housing have seen prices weaken a bit,” he said.

CoStar said CRE price growth has held steady as the economic expansion remained “resilient.” The firm’s equal- weighted and value-weighted indexes both advanced in July as low interest rates and continued investment capital availability resulted in a healthy environment for CRE price growth. 

CoStar’s value-weighted index, which reflects higher-value trades, advanced 1.3 percent in July and 10.1 percent in the 12-month period ending in July, propelling it to nearly 25 percent above its pre-recession peak level. The firm’s equal-weighted index, which is weighted toward smaller lower-end properties, also increased 1.3 percent in July, contributing to a 7.2 percent annual gain for the year ending in July. 

CoStar called transaction activity “robust,” but noted that total composite-pair volume of $68.9 billion year-to-date fell 2.8 percent shy of last year’s pace. “The deceleration in trading activity is likely to contribute to more modest price growth in 2016 than the record pace of the last two years,” the report said.