All CRE Sectors Are Improving

In the third quarter, the four major commercial real estate sectors all showed gains for the first time since 2007, according to the latest data from the CoStar Commercial Repeat-Sale Indices (CCRSI). 

Overall, CoStar’s indices pegged the increase in the pricing of “investment-grade” real estate from July to September at 5.5 percent, while the “general” property pricing increased 2.3 percent in the third quarter. CoStar differentiates the classes of properties based on size and certain criteria specific to the various market sectors, such as number of units for apartment properties and age for industrial properties.

The month-to-month gain from August to September matched that level.

CoStar’s investment-grade index registered a 3.2 percent decline in the second quarter of 2010. Even after the third quarter gain, the index remains 4.9 percent off the year-earlier period and 29.1 percent below its level from two years ago.

In an interview with REIT.com, Chris Macke, senior real estate strategist for the CoStar Group, said the latest results reflect the generally held belief that transaction activity is finally heating up.

“The market is clearly firming up,” Macke said. “We all hear about the core property sales and the core markets getting a lot of action.”

Macke noted that conditions in the financial markets and actions taken by federal regulators are helping prop up commercial real estate pricing.

“We do know that the highest demand for properties right now is in the larger markets for core assets to a large degree because treasuries are so low,” Macke said. “People don’t have to sell assets today at a price that was lower than what they purchased them for.”

The latest CCRSI results painted a different picture of the market than another major industry bellwether, the Moodys/REAL Commercial Property Price Index (CPPI), which registered drops in both August and September.

Like the CCRSI, the CPPI bases its calculations on repeat sales data. Because both use similar methodology to compute their indexes, Macke attributed the differences in the results to their data sources. He noted that CoStar uses its own proprietary data to derive the CCRSI, while the CPPI uses data provided by commercial real estate firm Real Capital Analytics (RCA).(cresit a. kenney-reit.com)

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