Suburban Multifamily Sales Boost Third-Quarter Prices

Commercial real estate sales prices showed growth in the third quarter, with performance mixed across property types, according to the latest monthly CoStar Commercial Repeat Sale Indices.

The value-weighted U.S. Composite Index, which reflects larger asset sales common in major markets, rose 3%. The index recouped losses sustained in the second quarter and is now 1.7% above its March pre-pandemic level. Growth was supported by sturdier pricing for high-value assets, particularly apartments.

“The multifamily sector showed resilience, with pricing up modestly in the most recent quarter, and from pre-pandemic levels,” said Nancy Muscatello, a CoStar managing consultant.

“Similar to the changes we’ve seen in terms of tenant demand, suburban multifamily product appears to be driving recent price growth, while pricing has retrenched in the downtown areas of the primary markets,” she said.

Meanwhile, the equal-weighted U.S. Composite Index, which reflects the more numerous but lower-priced property sales typical of secondary and smaller markets, rose by a smaller 2.2% and remains 1% below its March pre-pandemic level.

While multifamily led price growth among all six property-type indices, losses continued to plague the retail and hospitality sectors that have been hurt much more directly by a weakened economy, along with restrictions on travel and social gatherings.

The U.S. Retail Index fell 0.8% in the third quarter, contributing to a decline of 3.7% since the fourth quarter. The stability of essential retail tenants such as pharmacy and grocery stores in the pandemic has divided the investment landscape. Higher quality, well-located centers focused on tenants meeting consumers’ everyday needs are showing price growth while pricing is regressing in centers with higher vacancy rates.

Industrial property was a solid performer.

“Strong demand tailwinds from the accelerated adoption of e-commerce continued to bolster price growth in the industrial sector,” Muscatello said.

Office pricing was generally flat as total volume remained depressed from recent levels.

Overall, repeat-sale commercial property transactions totaling $66.5 billion from January to September marked a 40% decrease from the same time in 2019.

CoStar’s sales indices provide the market’s first look at commercial real estate pricing trends. Based on 1,066 repeat-sale pairs in September and more than 231,733 repeat sales since 1996, the CCRSI offer a broad measure of sales activity. When a property is sold more than once, the price change from the pair of first and second sales are used to calculate price movement, and those sales pairs are used to create a price index.

While investor uncertainty has depressed sales activity, signs of distress in the investment market have not yet shown up in CoStar’s data. In the third quarter, the distressed sale percentage of total transactions remained at 1.7%, which was on a par with the quarterly average in 2018-2019. CoStar defines a distressed property sale as including conditions such as auctions and foreclosures.

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