CRE Prices Show Little Change

Commercial real estate price indexes showed little movement at the beginning of the second quarter, reported CoStar, Washington, D.C.

CoStar’s value-weighted pricing index, which reflects larger asset sales common in core markets, rose 1.4 percent in April; the firm’s equal-weighted index, which reflects the more numerous but lower-priced property sales typical in secondary and tertiary markets, declined by 1.4 percent.

The value-weighted index has gained 9.1 percent in the past 12 months compared to an 8.6 percent increase in the equal-weighted index.

CoStar noted transaction volume has fallen due to a drop in investment-grade property sales. Volume of $134 billion in the 12 months ending in April was 1.4 percent lower than the same period a year before, indicating a “modest deceleration” in capital flows from the record-setting levels of the past two years. Transaction volume in the investment-grade segment declined nearly 5 percent to $95.8 billion while composite pair volume increased 8.1 percent to $38.2 billion in the general commercial segment of smaller, lower-priced properties during the same time period.

“Other liquidity measures show a fully recovered real estate investment market,” CoStar said. The average time properties spent on the market declined more than 16 percent in the 12-month period ending in April. Meanwhile the gap between sales prices and asking prices narrowed by 1.3 percentage points to 92.8 percent in April 2018. “This ratio, which measures the spread between buyer and seller expectations, remains the tightest on record,” CoStar said.

Green Street Advisors, Newport Beach, Calif, said investment-grade asset property prices increased by 1 percent nationwide in May. Industrial and lodging values moved higher while most other sectors were little changed.

Green Street Senior Analyst Peter Rothemund said the aggregate index, which measures values across the five major property sectors, has been “moving sideways” for the past two years. “On average, commercial property pricing has barely budged over the past year, but the average masks big differences across property sectors,” he said. “Industrial continues to be red hot; prices are up 15 percent over the past year.”

But the retail sector continues to see prices declines, especially malls, Rothemund added.