Commercial market experiences price strengthening, sales boom in 2012

Commercial real estate pricing rose in 2012.

More property management companies experienced stronger commercial real estate conditions throughout the country last year, as price bumps helped sales increase significantly.

Sales throughout the country rose to approximately $64 billion during 2012, which was nearly 25 percent higher than than the full 2011 year, a report from CoStar Group noted. This was the best full-year figure recorded in eight reports.

This was driven by sizable gains in price growth during the year. CoStar's Commercial Repeat Sale Indices report showed that the value-weighted U.S. Composite Index – which examines less-pricey, smaller property sales, increased more than 4 percent in December from 12 months earlier. The equal-weighted U.S. Composite Index saw an even bigger gain, as the reading jumped approximately 8 percent during that period. Much of the improvement was helped by the multifamily sector, with other areas of the market lagging behind.

"Taken together, the two trends signify that investors are moving beyond core properties and driving up pricing at the lower end of the market," said Dr. Ruijue Peng, author of CoStar's report. "As the pricing recovery expands beyond multifamily, this sector's stellar pace of growth is beginning to moderate."

Land prices also made significant strides during the year, despite the figures not yet reaching levels seen during the cyclical peak. The report's Land Index improved nearly 4 percent during the final quarter of 2012. This was still more than 39 percent off from the peak, recorded during December 2007.

There also was a notable decline in distressed property sales. This figure fell to less than 12 percent of the total share of sales during the final month of the year, the report added. This improvement helped the pricing situation markedly, as it was the lowest distressed percentage in four years.

Construction spending improves in 2012
Commercial property managers also experienced a heightened level of capital in the commercial market during the full 2012 year. The total rate of construction rose to $885 billion during the year, which was nearly 8 percent improved from the end of the previous year, according to a report from the Department of Commerce.

Private, nonresidential construction made a gain of nearly 2 percent during the final month of 2012, as it was at a rate of $306.7 billion. Total private construction rose to nearly $615 billion, the report added. This was 2 percent higher than the rate recorded in November.

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