The CoStar Commercial Repeat-Sale Index (CCRSI) ended this past summer much as it began, with upward momentum in pricing momentum for commercial real estate as both national composite indices advanced by a healthy margin for the 12-month period ending in August, driven by improving price conditions for smaller, lower-end properties in markets across the U.S.
The value-weighted U.S. Composite Index, which reflects larger asset sales common in core markets, advanced 3.5% in August from a year earlier while the equal-weighted U.S. Composite Index, reflecting lower-priced property sales typical in secondary and tertiary markets, rose by a solid 16.5%.
Within the robust equal-weighted index, the General Commercial segment comprised mostly of smaller, lower-priced properties, increased just under 20%, one of the highest annual gains on record within the CCRSI, as investors pursued smaller properties across a wider array of markets. The Investment-Grade sub index, influenced by higher-value property deals, rose 7.6% from the prior year in August.
The pricing indices continue to see growth in the face of slowing absorption and deal volume. Net absorption rate as a share of total market inventory has slowed from prior years, according to an analysis by CoStar of preliminary third-quarter net absorption data.
Office, retail, and industrial saw a 0.2% net absorption rate in the first three quarters of 2017, down from an average rate of 0.4% seen from 2015-2016, probably due in part to an increase in new supply.
U.S. net absorption is projected to total 493.8 million square feet across the three property types for the 12-month period ending in September, still at roughly 2013 levels. While composite pair sales declined 1.6% from the previous 12-month period to $130.2 billion, 2017 continues to log some of the highest annual transaction volume totals on record for the CCRSI.
Transaction activity continued to benefit from historically low interest rates, though investor concerns over concentration risk and peak pricing levels in some markets and property types could be contributing to the slowing of repeat-sale trading volume.
Commercial real estate transaction activity has continued to benefit from a low-interest-rate environment. However, investor concerns over concentration risk and peak pricing in some markets and property types may be contributing to slower repeat sale trading volume.
Source: CoStar
Randolph is a Multifamily Investment Sales Broker with eXp Commercial servicing Multifamily Buyers and Sellers in the Greater Chicago Area.