CoStar : Commercial Property Prices Sustain Upward Climb in August

This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at August 2014 commercial real estate pricing. Based on 1,279 repeat sales in August 2014 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity. 

• STRENGTHENING FUNDAMENTALS HELPED CRE PRICES REMAIN ON UPWARD TRAJECTORY IN AUGUST.  Fueled by better than expected job growth, demand continues to outstrip supply across major property types, resulting in tighter vacancy rates and continued investor interest in commercial real estate.  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% and 1.5%, respectively, in August 2014.
  
  
• IMPROVEMENT IN EQUAL-WEIGHTED U.S. COMPOSITE INDEX CONFIRMS A BROAD-BASED PRICING RECOVERY. The value-weighted U.S. Composite Index, which is heavily influenced by larger, core transactions, has now reached prerecession peak levels, and price gains have naturally slowed as a result. The Index increased 8.7% for the 12 months ending in August 2014, following 12% growth in the prior 12 months. Meanwhile, price growth in the equal-weighted U.S. Composite Index, which is influenced more by smaller non-core deals, accelerated to an annual rate of 13.6% in August 2014, up from an average of 8.7% in the prior 12 months.  
  
  
• DEMAND FOR CRE SPACE ACCELERATES IN THE THIRD QUARTER.  During the third quarter of 2014, net absorption for the three major commercial property types - office, retail, and industrial - climbed to 439 million square feet for the 12-month period ending in September 2014, 11.6% higher than in the prior 12-month period. Reflecting recent price gains in lower-tier properties, the rate of net absorption in the General Commercial segment increased by more than 50% for the 12-month period ending in the third quarter of 2014, compared with a decline of 5% in net absorption in the Investment Grade segment. 
  
  
• RECOVERY IN OFFICE SECTOR PRICES SPREADS BEYOND CBD TO SUBURBS.  This month, we introduce CBD and Suburban office price indices as a new addition to the CCRSI. The CBD segment has led the price recovery in the office market as core downtown properties largely benefited from the first wave of demand and investor interest. The Office - CBD Index rose to within 20.6% of its prerecession peak as of August 2014, meanwhile the Office - Suburban Index is still 25.4% below its previous peak.  However, momentum is building in the suburban segment. In tandem with solid demand growth over the last year, the Office - Suburban Index advanced 9.2% for the twelve months ending August 2014, versus 3.2% in the Office - CBD Index for the same time period. 
  
  
• TRANSACTION VOLUME IS RISING.  Composite pair volume of $52.8  billion through the first eight months of 2014 marked an 11.2% increase from the same period in 2013.  Rising occupancies have bolstered net operating income (NOI) across a number of markets, leading to fewer forced property sales as well.  Just 10.5% of all repeat sale transactions involved distressed assets in the first eight months of 2014, down from one-third of all repeat sale transactions in 2010.
  

The CoStar Commercial Repeat-Sale Indices (CCRSI) is the most comprehensive and accurate measure of commercial real estate prices in the United States. In addition to the national Composite Index (presented in both equal-weighted and value-weighted versions), national Investment Grade Index and national General Commercial Index, which we report monthly, we report quarterly on 30 sub-indices in the CoStar index family. The sub-indices include breakdowns by property sector (office, industrial, retail, multifamily, hospitality and land), by region of the country (Northeast, South, Midwest, West), by transaction size and quality (general commercial, investment grade), and by market size (composite index of the prime market areas in the country).

The CoStar indices are constructed using a repeat sales methodology, widely considered the most accurate measure of price changes for real estate. This methodology measures the movement in the prices of commercial properties by collecting data on actual transaction prices. When a property is sold more than one time, a sales pair is created. The prices from the first and second sales are then used to calculate price movement for the property. The aggregated price changes from all of the sales pairs are used to create a price index.

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CoStar Group (Nasdaq:CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. Through LoopNet, the Company operates the most heavily trafficked commercial real estate marketplace online with more than 8.7 million registered members. Apartments.com is a premier online apartment resource for renters that matches apartment seekers with great apartment homes and provides property managers and owners a proven platform for marketing their properties. CoStar operates websites that have approximately 16 million unique monthly visitors in aggregate. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S., Canada and Europe with a staff of over 2,300 worldwide, including the industry's largest professional research organization. For more information, visit www.costargroup.com.
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