CRE’s Comeback Shows Muscle

Asset values and transaction volume continue to gain across a broad spectrum of product categories.

Not every corner of the economy has shared in the recovery. Wages, for instance, have missed the bus, and among industries, many newspapers and other publications, and some department stores and big box retailers, aren’t what they used to be, though deeper reasons are for their decline appear to be at work. Still, despite the unevenness of the recovery, there’s ample evidence that real estate has bounced back quite well.

According to new data from CoStar, nearly every commercial real estate sector is doing fairly well. Of course, that means CRE in the aggregate, a perspective that tends to gloss over pockets of weakness. Even so, the data is optimistic on the whole.

First, valuations are strong. The company’s value-weighted U.S. Composite Index, which is influenced by high-quality assets in core markets, advanced by 4.7 percent in the first quarter of 2015 and is now 11 percent above its previous peak in 2007. The equal-weighted U.S. Composite Index, which weighs each transaction equally and therefore reflects the impact from more numerous smaller deals, rose 4.8 percent in the first quarter of 2015. However, It is still 10 percent below its previous peak level.

As mentioned before, apartments aren’t the only assets that are fetching attractive prices. All major categories posted double-digit annual gains through March. CoStar’s Multifamily Index has already fully recovered, surpassing its previous peak a while back, while its Retail and Industrial Indices advanced to within 10 percent of their previous highs. Bringing up the rear, CoStar’s Office Index remained 15 percent below its previous high-water mark in 2007.

Also, transaction volume has been peppy of late. After reaching a new high in 2014, property sales transaction activity remained strong in the first quarter. While the first quarter is typically the weakest for sales, this year activity didn’t drag noticeably. Volume totaled about $27.8 billion during the first quarter, a 50 percent year-over-year increase. That is likely a sign of continued strong capital flows. Low interest rates have clearly been a factor, but buyers believe that properties have a runway ahead of them, and sellers understand that they are getting nice prices.