Investment grade real estate continued its positive trend from August with a strong 5.48% increase in September, according to CoStar Group's newly released Commercial Repeat-Sale Indices (CCRSI).
Also, for the first time since the second quarter of 2007, all four primary property types within the commercial real estate repeat sales index (office, retail, industrial and multifamily) showed an increase in pricing in the third quarter.
The CoStar investment grade real estate index remains down 4.89% from the same period last year, and down 29.08% from two years ago. However, for the third quarter, the investment grade real estate index increased 5.46%. This is a significant reversal from the previous quarter, as the investment grade real estate index was down 3.24%. The CoStar investment grade index is therefore showing positive price movement quarter over quarter.
The CCRSI October report is based on data through the end of September, 2010. In September, 574 pair sales were recorded compared to 611 sales pairs from August. Typically CoStar receives additional data that adds a few percent to the numbers from 2 months ago and up to 12% more data from one month ago, so it appears that sales volumes are stable.
This volume is up from a year ago in September when the CCRSI saw 513 sales pairs. The general volume appears down while the investment grade sales volume was up for the month.
Overall, there has been an upward trend in pair volume going back to 2009. January 2009 appears to have been the low point in the downturn in terms of pair volume, when 376 transactions were recorded. Since then, pair dollar volume has increased overall and the average deal sizes for both general and investment grade have increased.
CoStar's index is the only repeat sales index that also tracks commercial real estate transaction prices less than $2.5 million. The CoStar index that takes into account all property sales, including those less than $2.5 million, is referred to as the general commercial real estate index.
The general commercial real estate index continued its quarter to quarter fluctuations, most recently reversing the negative price trends from the second quarter and turning positive once again in the third quarter.
In the third quarter, general commercial real estate index increased 2.29% for the quarter with a positive 3.68% increase for the month of September. The general real estate index is down 7.38% from a year ago and down 20.99% from two years ago. However the general commercial real estate index has shown less volatility than the investment grade property index.
In the past quarter, of the four major CRE categories, the US multifamily index moved up the most with a positive 8.98% increase, with the office index increasing 6.08%, followed by the retail index increasing 5.56%. The industrial index remained mostly flat with a slight increase of 0.49% for the quarter. The increase in retail property represents a huge reversal of prior trends in that category, but retail property is still down 8.25% from a year ago.
Most of the top 10 markets moved in the same direction as the property category trends showing the current capital appetite preference for larger markets. The index for the top 10 office markets was up 13.37% for the quarter, the index for the top 10 multifamily markets was up 7.91% and the index for the top 10 retail markets was up 5.61%, but the index for the top 10 industrial markets was down 9.17%, suggesting the larger industrial markets are seeing more distress than the smaller industrial markets.
Sales transaction dollar volumes used to calculate our September indices were up slightly for investment grade and were stable for general commercial real estate. Overall transaction and dollar volumes were up slightly for the month of September.
Distress continues to be a significant factor in the index results. Since 2007, the ratio of distressed sales to overall sales has increased from approximately 1% of overall sales to approximately 22% currently.
