CRE Price Index Sees First Year-Over-Year Gain Since 2008
This CoStar article verifies what we are seeing in the Bay Area. Investors are looking at their options and see growth potential and deals to be had in the market. Volatility in the stock market, yields compared to alternative investments and the historical lows in interest rates have fueled investors to seek out commercial real estate.
Fewer Distressed Sales and Solid Investment Grade Deal Activity is Driving Sustained Pricing Rebound
By Randyl Drummer
CoStar’s monthly National Composite Index of commercial real estate prices increased 2.2% in October from the same period a year ago, the first year-over-year improvement since the economy took a sharp downward turn in 2008.
The solid recovery of investment-grade property prices and the continued decline in distressed sales volume spurred the growth in commercial property pricing, lifting the index to an impressive 1.8% gain in October from the previous month and continuing its upward trend.
The year-over-year and monthly increases in October reflected long-awaited positive momentum in the composite index, which has now achieved a steady 1.3% average monthly growth rate over the six-month period between May and October 2011, according to this month’s CoStar Commercial Repeat Sale Index (CCRSI), based on 743 repeat sale transactions recorded in October and more than 100,000 repeat sale transactions since 1996.
Other highlights from this month’s CCRSI report include the following:
- The General Commercial Index continued its steady move upward, increasing by 1.4% in October, the sixth consecutive month of rising prices since reversing the 32-month downward trajectory in general commercial property pricing that began in September 2008.
- The Investment Grade Index gained a strong 3.4% in October from the previous month. After bottoming in late 2009, this index bumped along near the bottom around the same level for almost two years before beginning its recent climb in March 2011. Growth resumed in September following a brief pause in August, and CoStar analysts predicted sustained growth because it synchronizes with the price increase tracked by the General Commercial Index, an indication of an across-the-board recovery.
- Stable fundamentals across most commercial property markets and product types, including improving occupancy, and softening downward pressure from distress sales, supported the solid performance of both the investment grade and general indices. The level of distress sales as a percentage of general commercial repeat sales fell from 33% in March 2011 to 24% in October 2011. For investment-grade properties, this ratio dropped even more steeply, from 53% to 28% in the same period.
Read more of the CoStar article here.
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