U.S. commercial real estate price declines outnumbered gains by region and property type for a second straight quarter, but signs of improvement are emerging.
Multifamily prices gave back more pandemic-era gains in the third quarter with drops across all four regions — South, Northeast, Midwest and West — tracked by CoStar Group’s monthly Commercial Repeat-Sale Indices report. Retail prices fell in three regions. But office and industrial prices gained in three regions.
While mixed, the results point to improvements in acquisitions, with some investment-grade property deals starting to pick up.
The expected rates of return for properties have peaked “for industrial and multifamily, and we’ll see it next year for retail and office," said Chad Littell, national director of U.S. capital markets analytics for CoStar and the report's author. "The ocean’s current is changing.”
The CCRSI report breaks down multifamily, retail, office, and industrial further within each of the four regions to produce 16 total categories for analysis. Seven of the 16 groups showed price gains in the third quarter over just five the prior quarter.
The report tracks when a previously sold property trades hands again in a process called a repeat sale. The September update is based on 1,197 sale pairs and more than 312,596 repeat sales since 1996.
In another sign of market conditions, repeat transactions increased last month for investment-grade distressed sales.
A small but growing number of distressed repeat sales made up 8.8% of the 194 investment-grade pair trades, up from 4.8% in August and the highest monthly total in the third quarter, according to Littell. The quarterly average has been climbing since early 2022 when the Federal Reserve began raising interest rates.
Regional results
South: In the South, only multifamily failed to post a third-quarter gain. The region’s industrial, retail, and office indices were all positive compared to the second quarter. Industrial prices were up 1.5% quarter over quarter and put up a 4.3% annual gain. Retail prices were 1% higher quarter over quarter, while office rose 0.7%. Multifamily pricing extended its negative trend, giving back 1.8% in the quarter and 4.1% over the prior 12 months.
Northeast: Industrial also stood out in the Northeast. Retail, multifamily, and office prices were down quarter over quarter the region. Multifamily and office prices dropped 1.9%. Retail had the biggest slide, falling 2.3%. Industrial grew 1.9% in the third quarter but was still down 0.7% annually. Compared to September 2023, all four property types were lower with retail, at minus 4.4%, giving up the most value.
Midwest: Office prices gained in the Midwest, rising 0.3% on a quarterly basis, and now showing gains in three consecutive quarters. Multifamily prices dropped 1.9%, reversing two previous quarters of strong gains. Multifamily posted annual price increases above 3% over the past three years. Industrial prices dropped 1.8%. Retail shed 2.4% quarter over quarter.
West: The West, which has seen some of the steepest price declines over the past year, posted noticeable gains in the third quarter. Industrial property prices rose 2% quarter to quarter, and office gained 0.9%. The multifamily index dropped 1.4% quarter to quarter. That's a far less steep drop, however, than losing 22.7% of its value compared to June 2022. Retail also dipped 1.4% over the previous quarter.