U.S. commercial real estate sales prices improved in the fourth quarter for large-dollar deals in major markets.
While the results weren’t unanimous for small-dollar deals in secondary markets, prices in this category stabilized or slowed their decline, according to the December CoStar Commercial Repeat Sale Indices. The report, an indicator of market trends, tracks when a previously sold property trades hands again in a process called a repeat sale.
The improvement in large-dollar deals came as the dollar volume of such transactions has been increasing quarter to quarter, as has the average sale price, at a time when U.S. economic activity is expanding at a solid pace. The deals are making up an ever-larger percentage of repeat sales, which reached the highest quarterly total in two years at 4,538 transactions. The fourth-quarter volume of $35.53 billion was also a two-year high.
The analysis found that by property type, industrial prices alone rose both in large and small markets, while other sectors were mixed. Investment-grade properties are typically large top-tier buildings most often purchased by institutional investors.
“Notably, the spike in sales volume was more prominent in the investment-grade segment, which leaped 25.1% over the 12 months that ended in December,” according to Chad Littell, national director of U.S. capital markets analytics for CoStar Group and the report's author.
Investment-grade volume made up 63% of the fourth-quarter deals. That was up 55% from a year earlier. The average investment-grade deal size equaled $7.44 million, a 54% jump from the fourth quarter a year earlier.
The monthly trend in year-over-year sales has been positive since April following a 21-month run of negative results as investors have started wading back into the market, according to Littell.
Industrial sales gain
Industrial property pricing improved for both large- and small-dollar deals in the fourth quarter. The equal-weighted industrial index that tracks the more numerous, low-priced property deals typical in small markets rose 0.3%.
The value-weighted industrial index more typical for high-dollar trades common in major cities fared better, climbing 0.6% compared to the prior quarter.
Retail assets did better in large markets. The equal-weighted retail index fell 0.2% over the prior quarter. On the other hand, value-weighted retail prices were up 2.3%.
The equal-weighted multifamily index was flat, while the value-weighted measure of large markets jumped 2%.
Small-market office prices declined in the fourth quarter, but the pace has slowed. The equal-weighted office index lost 1.9% in the fourth quarter. In the value-weighted office segment, prices rose 0.2%.
Regional results split
The CCRSI report breaks down multifamily, retail, office and industrial real estate within each of four regions in the country to produce 16 total categories for analysis. Eight of the 16 groups showed price gains, and eight revealed losses.
That is an improvement over the two previous quarters when price declines outnumbered gains by region and property type. Here are the fourth quarter’s repeat-sale results:
- South: The equal-weighted index declined 1% while the value-weighted index grew 1%.
- Northeast: The equal-weighted index shed 2.4% of value while the value-weighted index was 1% higher.
- Midwest: The equal-weighted index declined 0.8%, while its value-weighted cohort was down 1.4%.
- West: The equal-weighted index peeled 0.3% off its value while the value-weighted index gained 1.8%.