CRE Pricing Strengthens Following Seasonal Slowdown

Pricing Improvements Signify ‘Virtuous Cycle’ Encouraging Lending, Capital Inflows. Commercial real estate prices resumed broad-based gains in April, shaking off the effects of a seasonal slowdown in the first quarter, according to the latest CoStar Commercial Repeat Sale Indices (CCRSI) release.

The equal-weighted and value-weighted U.S. Composite Indices posted solid monthly gains in April of 1.9% and 1.1%, respectively, as market fundamentals continued to improve across all the major CRE property types.

The value-weighted U.S. Composite Index, comprised of larger transactions, continued at a very strong year-over-year clip, gaining 10.8% in April. The equal-weighted composite, generally comprised of smaller and more numerous deals, rose 6.3% from the same period last year.

Within the equal-weighted U.S. Composite Index, the Investment Grade Index and General Commercial Index both made strong gains in April as the CRE pricing recovery rippled into more secondary property types and markets.

The investment grade segment surged by 4.1% in April, more than offsetting the first-quarter’s losses, and by 8.5% from a year ago. The index closed the month 1% above December 2012 pricing levels as office, retail and warehouse recorded the strongest gains, with the price recovery expands beyond the apartment sector.

Multifamily pricing, meanwhile, the first to rise emerging from the downturn, has stagnated in recent months as a result of rising new supply and near-peak pricing in primary markets. The General Commercial Index rose a modest 1.7% in April 2013 and 5.8% from a year earlier.

Repeat-sale transaction volume increased 25% from the first-quarter 2013 monthly average in April to $5.1 billion, reflecting the increasing liquidity in the investment sales market. The average time on market for commercial properties listed for sale fell 5.1% in April from its peak a year ago, while the gap between initial asking price and final sales price has narrowed by almost 2.2% from year-ago levels.

Also, the fewer number of properties withdrawn from the market by discouraged sellers is another indication of improving investor sentiment. The number of properties withdrawn from the market in April 2013 declined 5.8% from the prior year.

“The improvement indicates a virtuous cycle necessary for sustained recovery,” noted the CCRSI’s author, Dr. Ruijue Peng. “As the pricing recovery encourages lending and capital inflows, a more liquid and efficient market is expected to support further advances in pricing.”

Source: CoStar Randyl Drummer June 12, 2013
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