CoStar : Real Estate Upcycle Continues as CoStar Composite Price Indices Approach Year End With Moderate Gains

Dec 27, 2017

SOLID ABSORPTION AND SALE VOLUME SUPPORT PRICE GROWTH

CCRSI RELEASE - DECEMBER 2017
(With data through NOVEMBER 2017)

This month's CoStar Commercial Repeat Sale Indices (CCRSI) provides the market's first look at commercial real estate pricing trends through November 2017. Based on 953 repeat sale pairs in November 2017 and more than 185,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

CCRSI National Results Highlights

• COMPOSITE PRICE INDICES HEAD INTO YEAR-END WITH MODERATE GAINS. Both the value-weighted U.S. Composite Index, which reflects larger asset sales common in core markets, and the equal-weighted U.S. Composite Index, which reflects the more numerous but lower-priced property sales typical of secondary and tertiary markets, advanced by a healthy margin over the 12 months ended in November 2017. However, the momentum in pricing is still strongest in the equal-weighted index. The equal-weighted U.S. Composite Index was up 14.2% in the 12- month period ended in November 2017, while the value-weighted U.S. Composite Index rose a more modest 6.2% in the same period.

• PRICING MOMENTUM REMAINS STRONGER AT LOW END OF MARKET WITHIN THE EQUAL-WEIGHTED INDEX. The divergence in price growth in the composite indices was also reflected in the two sub-indices of the equal-weighted Composite Index. The General Commercial segment, which is influenced by smaller, lower-priced properties, increased 16.3% in the 12-month period ended in November 2017. Meanwhile, the Investment-Grade Index, which is influenced by higher-value properties, rose by 6.6% in the same period. The recent momentum in the General Commercial segment demonstrates the breadth of the pricing recovery.

• RATE OF COMMERCIAL SPACE ABSORPTION HAS MODERATED. The rate of
  net absorption as a share of total inventory has slowed from prior years. The net absorption rate across the three major property types-office, retail, and industrial-is projected to increase modestly by 0.3% in 2017, slightly lower than the 0.4% absorption rate in 2015-2016, due in part to an increase in construction at this point in the cycle. Still, net absorption is expected to total 524.1 million square feet across the three property types for the full year of 2017, a return to 2013-2014 average levels.

• TRANSACTION VOLUME LOWER THAN PRIOR YEAR BUT STILL ROBUST.
  Composite pair volume of $127.4 billion in the 12-month period ended in November 2017 was 7.5%lower than the same period in 2016. However, transaction volume was still one of the highest annual totals on record for the CCRSI. Commercial real estate transaction activity has continued to benefit from a low-interest-rate environment. However, concerns over concentration risk and peak pricing in some markets and property types may be contributing to slower repeat sale trading volume.

About The CoStar Commercial Repeat-Sale Indices

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, and 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 once, 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.

MEDIA Contact:

Gay Beach, Senior Director, Marketing Communications, CoStar Group (gbeach@costar.com).

For more information about the CCRSI Indices, including the full accompanying data set and research methodology, legal notices and disclaimer, please visit http://www.costargroup.com/costar-news/ccrsi.

About CoStar Group, Inc.

CoStar Group, Inc. (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. LoopNet is the most heavily trafficked commercial real estate marketplace online with over 5 million monthly unique visitors per month. Apartments.com, ApartmentFinder.com, ApartmentHomeLiving.com, Westside Rentals and Apartamentos.com form the premier online apartment resource for renters seeking great apartment homes and provide property managers and owners a proven platform for marketing their properties. Through an exclusive partnership with Move, a subsidiary of News Corporation, Apartments.com is the exclusive provider of apartment community listings across Moves family of websites, which include realtor.com, doorsteps.com and move.com. CoStar Groups websites attracted an average of approximately 37 million unique monthly visitors in aggregate in the third quarter of 2017. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe and Canada with a staff of over 3,600 worldwide, including the industry's largest professional research organization. For more information, visit www.costargroup.com.

This news release includes 'forward-looking statements' including, without limitation, statements regarding CoStar's expectations, beliefs, intentions or strategies regarding the future. These statements are based upon current beliefs and are subject to many risks and uncertainties that could cause actual results to differ materially from these statements. The following factors, among others, could cause or contribute to such differences: the risk that the trends represented or implied by the indices will not continue or produce the results suggested by such trends, including trends related to absorption, transaction volume and price growth, the risk that net absorption across property types will not be as expected and stated in this release; the risk that investor behavior and demand changes; and the risk that transaction volume and commercial real estate pricing levels and growth will not continue at the levels or with the trends indicated in this release. More information about potential factors that could cause results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, those stated in CoStar's filings from time to time with the Securities and Exchange Commission, including in CoStar's
Annual Report on Form 10-K for the year ended December 31, 2016, and CoStar's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, each of which is filed with the SEC, including in the 'Risk Factors' section of those filings, as well as CoStar's other filings with the SEC available at the SEC's website (www.sec.gov). All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.