Price growth occurs in multiple CRE sectors

Commercial real estate price improvement occurred in September.

The level of pricing growth throughout the commercial real estate market improved in September, as property management companies experienced significant gains, a report from CoStar Group showed.

Multiple indices showed stark gains in pricing during the month, as well as during the quarter. The firm's Commercial Repeat Sale Indices noted the Value-Weighted Composite Index rose more than 8 percent during the month, compared to the same point 12 months earlier. The group's Commercial Repeat Sales Indices report also showed the Equal-Weighted Composite Index rose nearly 10 percent during the same period.

Other significant improvements occurred in pricing. The report showed that the Investment Grade Index rose more than 15 percent from the same month in 2011, which helped top properties come closer to pricing not experienced in a few years. Additionally, the General Commercial Composite Index showed that more affordable properties had a 4.3 percent rise in price during the third quarter, which was the most improved level since recovery began.

Multifamily leads property price spike
The commercial market experienced widespread sector improvement, and this was punctuated by the multifamily situation. The report showed that the Multifamily Index rose nearly 32 percent in the past three years. The sector is now less than 18 percent from the cyclical peak, which occurred five years ago.

Retail also had a heightened price level in September. The report's Retail Index improved more than 6 percent for the first nine months of the year. Land also improved when examining the third quarter. The 6.3 percent increase in price was still more than 40 percent from the peak level, but the gains were largely due to improved conditions in the multifamily and residential housing markets.

Office properties experienced a price gain of 6.5 percent throughout the year ending in September, while the industrial market also experienced improved conditions, the report explained.

There was also a lower level of distressed property transactions in September. The figure dropped to approximately 18 percent that month, which was more than 10 percentage points lower than the average since 2009, the report noted.

Dr. Ruijue Peng, author of the report, added that this trend should help improve the pricing situation, as well as lender confidence that the market is strengthening.

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