CoStar: Property Pricing Sees Little Movement in June
Commercial property pricing saw little movement in June, according to this month's CoStar Commercial Repeat Sale Indices (CCRSI).
Demand for space weakened in the second quarter of 2012 across most commercial real estate property types. Despite lower leasing demand, the U.S. Value-Weighted Composite Index held its ground in June 2012, while the U.S. Equal-Weighted Composite Index edged downward slightly.
On a quarterly basis, both indices advanced by 2.0% and remained within 150 basis points of their cyclical peaks.
The Investment Grade segment of the market reversed the price loss seen in May 2012 and advanced by 1.5%. Despite a 2.5% cumulative loss since the beginning of the year, the Investment Grade Index posted the highest quarterly growth among the four major CCRSI segments and remained 4.8% above year-ago levels.
The run-up in multifamily pricing continued in the second quarter of 2012. This property sector has been leading the recovery among all major property types in terms of timing and magnitude. The Multifamily Index advanced by a cumulative 24.3% from the trough through the first half of 2012, putting this sector closest to its peak level in 2007.
The retail sector suffered steep price losses during the recent recession. But after four years, retail property is beginning to show signs of pricing recovery. While investors remain cautious, pricing for this sector posted 3.7% average quarterly growth over the first six months of 2012. After bottoming in June 2011, the retail property sector has since advanced by 10.1%.
With unemployment ticking up during the second quarter of 2012, combined with the European debt crises, the pace of U.S. office recovery has moderated. The Office Index for June 2012 reflected the economic uncertainty in the market, with only modest pricing growth of 1.7% over year-ago levels.
Alone among the major property sectors, the Industrial Index recorded a pricing loss in the second quarter of 2012. To date, the recovery among industrial market fundamentals has centered on big-box distribution facilities in primary logistics hubs, but that highly concentrated investment activity has not translated into sufficient value growth to lift the Industrial Index, which declined by 1.7% in the second quarter of 2012, reaching its lowest level since 2003.
The Hospitality Index saw a promising pricing increase in the second quarter of 2012. Hospitality has been slow to recover since suffering the steepest cumulative price losses among the primary sectors. With average room rates rising in most markets, however, hospitality is becoming a much more desirable asset class among investors. The index has staged an impressive recovery, increasing by a cumulative 13.2% since the beginning of 2012.
Land prices continue to erode, reflecting the general aversion to development at this time, with the exception of multifamily property.
Among the CCRSI's four major U.S. regions, the West Composite Index turned in the strongest quarterly increase with a 5.5% pricing gain in the second quarter of 2012 based primarily on exceptional increases in the multifamily and retail property sectors. This region advanced by a cumulative 11.4% through the first half of 2012.
The Northeast Composite Index also saw strong pricing gains as the second best performing region in the second quarter of 2012. After bottoming two years ago, commercial property pricing in this region has advanced by a cumulative 16.6%. All major property sectors in this region, except industrial, have experienced pricing recovery, putting this region closest to its peak level.
The Midwest and South Composite Indices remain near the trough of their pricing cycles. Prices in both regions did not change significantly from the same period last year. Contrarily, in the Midwest region, the industrial sector was the only sector with positive quarterly gains, while in the South region multifamily and office sectors posted only modest positive gains.
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