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Latest Readings Show Commercial Property Prices Continuing to Moderate

Commercial real estate prices remain flat according to the most recent readings from three major indices.

With reported increases in cap rates and a slowing investment sales market, the three major commercial property prices indices (CPPIs) are showing at best meagre gains.

The all-property CPPI tracked by ratings firm Moody’s and research firm Real Capital Analytics (RCA) registered a 0.5 percent increase in March. Price indices for office buildings in Central Business Districts (CBD) and retail properties showed the highest upward jumps, at 2.4 percent and 1.3 percent respectively. The industrial sector and office properties in suburban areas posted declines in prices, at 0.3 percent and 0.1 percent. The apartment sector has also posted a decline in prices during the period, at 0.5 percent.

The Moody’s/RCA CPPI tracks commercial property prices based on repeat sales that take place two months prior to the publication of its reports.

Green Street Advisors, a Newport Beach, Calif.-based research firm, reported that its aggregate CPPI remained flat in April. The CPPIs for every property type Green Street tracks, besides health care, remained flat as well during the month. Health care properties registered a 1.0 percent price increase in April. Green Street researchers attribute the slowdown in price growth to rising cap rates, which are offsetting growing rental incomes.

Green Street’s CPPI is based on unleveraged commercial property values captured from sales that are currently being negotiated or contracted.

The value-weighted U.S. composite price index tracked by research firm CoStar registered a 2.8 percent decline for the first quarter of 2017. The value-weighted index tracks sales of larger assets in core markets. On the other hand, CoStar’s equal-weighted composite price index, which looks at lower-priced sales in secondary and tertiary markets, went up by 4.8 percent during the same period.

“The recent divergence likely reflects a maturing cycle for commercial real estate investment, especially for the high-value properties in core markets that initially led the recovery,” CoStar researchers wrote in their report.

According to CoStar data, the price index for multifamily properties showed the lowest growth during the first quarter of all the property types it tracks, at 1.9 percent. Over the past two years, the multifamily index posted average quarterly increases of 2.9 percent. Indices for the other property types, including office, retail, industrial, hospitality and land, registered gains of 2.0 percent or more in the first quarter of 2017, CoStar reported.

CoStar used repeat-sale methodology in its indices.

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