Economy Watch: CRE Prices Still Climbing as Sales Volume Rise

U.S. commercial real estate prices are still on the rise due to healthy absorption and capital gains in the industry.

U.S. commercial real estate continued to enjoy price gains in November 2015, spurred by healthy levels of absorption and continued rental gains, even as construction levels slowly increased, according to the latest CoStar Commercial Repeat Sales Indices (CCRSI), which were published on Jan. 15. The indices are based on 1,290 repeat property sales nationwide in November and more than 150,000 such sales over almost 20 years, the company said.

The value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—two broad measures of commercial property sales prices—each increased by 0.9 percent in November 2015. The indicies also experienced annual gains of 12.2 percent and 11.7 percent, respectively, for the 12 months ended November 2015.

Commercial property prices reached new highs, noted CoStar, especially for high-quality assets in core markets. In November, the value-weighted U.S. Composite Index (which gauges high-quality assets) was 18.4 percent above its 2007 prior peak. The equal-weighted U.S. Composite Index, which reflects pricing for smaller properties in second-tier locations, also posted solid growth but remained 4 percent below its prior peak.

Global capital flows remained robust because of the relative attractiveness of U.S. assets. The sales volume of $110.2 billion from the start of 2015 through November was 25 percent higher than in the same period in 2014, suggesting that 2015 will beat last year’s record sales volume for the CCRSI.

Net absorption across the three major commercial property types—office, industrial and retail—totaled 649.2 million square feet for the full year of 2015, a 15.5 percent increase from 2014. That’s the highest calendar year annual total absorption since 2007.