'Stable' CRE Property Values

Michael Tucker mtucker@mba.org

March 15, 2018


Commercial real estate assets prices generally held steady in early 2018, sector analysts said.

Green Street Advisors, Newport Beach, Calif., reported its price index increased by less than 1 percent in February. The index is unchanged over the past year.

"Commercial property values in most sectors have been stable for some time," said Green Street Advisors Senior Analyst Peter Rothemund. But he said the recent increase in Treasury yields is affecting borrowing rates "and could cause a pullback on pricing."

Real Capital Analytics, New York, said its all-property index rose just 0.6 percent in January--the latest data available--the same pace seen since October 2017.

"Apartment and industrial growth continued to lead the other major property types, just as in 2017," RCA said. Apartment prices rose 0.9 percent in January to reach a point 10.9 percent higher than a year before, while industrial prices rose 0.7 percent for the month and 8.1 percent from a year prior.

RCA detected a new trend emerging in the office sector: price growth has "paused" for central business district offices while suburban office price growth is picking up speed, the report said. In January CBD office asset prices held steady from December and rose just 0.3 percent over the past three months. Meanwhile, suburban office prices increased 0.3 percent in January and rose 0.7 percent over the prior three months.

Retail prices rose just 0.2 percent in January, RCA said. While not the worst-performing property type, the index lags the others on an annual basis, posting just a 2 percent gain from a year ago.

CoStar, Washington, D.C., reported higher price growth in lower-priced assets than at the top of the market. Its equal-weighted index, which tracks the more numerous but lower-priced property sales typical in secondary and tertiary markets, advanced by 1.4 percent in January. Meanwhile, the firm's value-weighted index of larger asset sales in core markets fell 1.3 percent during the month.

Liquidity measures remain positive for both buyers and sellers, CoStar said. The average time on market for properties has dropped 21.6 percent in the 12 months ending in January and the sale-price-to-asking-price ratio narrowed 2.4 percentage points to 93.5 percent. Meanwhile, the share of "discouraged seller" properties withdrawn from the market fell six percentage points to 22.3 percent.

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