CRE Price Growth Picks Up in August

U.S. commercial real estate property price growth picked up in August, reported Real Capital Analytics, New York.

CRE asset prices rose 1.0 percent during August and are up 7.7 percent from a year ago after five months of slowed annual growth, said RCA Analytics Manager Elizabeth Szep. “National price gains were driven by increases in secondary and tertiary markets,” she said, noting non-major metro prices rose 8.3 percent year-over-year in August compared to 6.1 percent year-over-year in the six largest metros.

Szep noted price growth is diverging across U.S. metros. “After years of synchronized movement during the Global Financial Crisis and into the later stages of recovery, U.S. metros are now responding to their own local and individual dynamics,” she said. For example, while most areas posted strong price growth five years ago, formerly high-flying locales like New York City and Miami have begun to show a slowed pace of growth in 2018, she said. Meanwhile, secondary markets–which investors have favored since 2016–show accelerated increases.

“Raleigh/Durham (N.C) and Sacramento (Calif.) are among the top markets for price growth in the 12 months through mid-year 2018,” Szep said.

CoStar, Washington, D.C., noted commercial real estate prices continued to heat up at the end of summer, supported by sturdy market fundamentals and continued investor demand. CoStar’s value-weighted index, which reflects larger asset sales common in core markets, rose 1.3 percent in August, while the firm’s equal-weighted index, which tracks the more numerous but lower-priced property sales typical in secondary and tertiary markets, advanced 1.4 percent.

Peter Rothemund, Senior Analyst with Green Street Advisors, Newport Beach, Calif., said Green Street’s Commercial Property Price Index has increased by about 2 percent over the past year, continuing a trend of inflationary-type increases that started in late 2015. “For the most part, property appreciation has been modest over the past few years, something like 2 percent per year on average. Pricing for some types of property has certainly done much better than that, and some of those sectors continue to be hot, but in general, it’s hard to see a breakout from the types of tepid gains we’ve seen,” he said.