Commercial Property Price Growth Continues
Healthy CRE Market Fundamentals Supported Broad Price Growth
While construction has been rising in many markets, aggregate demand across the major property types continues to outstrip supply, resulting in lower vacancy rates and rent growth. This, in turn, continues to drive strong investor interest in commercial real estate, according to the latest CoStar Commercial Repeat Sale Indices (CCRSI).
In August 2015, the two broadest measures of aggregate pricing for commercial properties within the CCRSI-the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index-increased by 1.3% and 1%, respectively, and 12.6% and 11.4%, respectively, in the 12 months ended August 2015.
Recent stronger growth in the General Commercial segment, which is influenced by smaller, lower-value properties, confirms a broad-based pricing recovery. Within the equal-weighted U.S. Composite Index, the General Commercial segment posted a monthly increase of 1% in August 2015 and 11.9% for the 12 months ended August 2015, propelling the index to within 7% of its pre-recession high.
Robust CRE Space Absorption Bodes Well for Continued Favorable Property Sales Conditions
For the four quarters ended as of the third quarter of 2015, net absorption across the three major property types-office, retail, and industrial-totaled 611.4 million square feet. That is 20% more than in the four quarters ended as of the third quarter of 2014. It is also the second-highest annualized absorption total on record since 2008.
The office and industrial sectors turned in particularly strong performances during this 12-month period, averaging net absorption of 0.3% and 0.4% of inventory, respectively. The the retail sector averaged a more modest 0.2% in the trailing four quarters ended as of the third quarter of 2015.
The CCRSI’s U.S. composite pair volume of $79.5 billion year-to-date through August 2015 was a 32% increase compared with the same period in 2014. This suggests that 2015 could be another record year for commercial real estate acquisitions.
Both the high and low end of the market are attracting increased capital flows, with volume up by nearly 32% in both the Investment-Grade and General Commercial segments.
Source: CoStar Mark Heschmeyer October 13th, 2015