CRE Prices Grow, Volume Slows

U.S. commercial properties’ annual price growth increased in August even as deal volume slid for a second consecutive month, Real Capital Analytics and CoStar reported.

Real Capital Analytics’ U.S. National All-Property Index grew 6.7 percent from a year ago and 0.8 percent from July.

“Prices have continued to increase in part because of a well-functioning debt market,” said RCA Senior Analyst Wyatt Avery. “The ability to refinance properties rather than sell them has kept prices sticky.”

Avery noted investment volume dropped 54 percent in August compared to a year prior as single-asset transactions fell and entity deals were “absent” during the month.

The industrial sector continues to boost CRE asset annual price growth, climbing 12.5 percent over the past year, RCA reported. But monthly price gains for the sector eased to a 0.4 percent pace. Apartment properties posted the second strongest annual gain.

CoStar, Washington, D.C., said CRE asset prices maintained their “steady” growth trend throughout the summer. The research firm’s equal-weighted index, which reflects the more numerous but lower-priced property sales typically seen in secondary and tertiary markets, increased 1.9 percent in the three months ending in August. CoStar’s value-weighted index, which reflects larger asset sales common in core markets, rose 2.2 percent during those months. Both CoStar measures have surpassed previous cycle peaks.

“Recent annual [price] gains have decelerated from a double-digit annual growth pace set for both indexes earlier in the cycle,” CoStar said. “However, such a slowdown in growth is not unexpected as the cycle has matured.”

CoStar said the “subdued” construction pace over the last several years has extended the commercial real estate cycle and supported continued price growth. Deliveries as a share of existing stock across the office, retail and industrial sectors have averaged just 0.2 percent over the last four quarters, half the rate of deliveries seen at the peak of the last cycle in 2007 and 2008.

The CoStar report noted a distinct tenant preference for high-quality space during this cycle, saying it projects quarterly construction completions relative to total stock in the investment-grade segment to average 0.3 percent compared to 0.1 percent for non-investment-grade properties.