Latest CRE Price Analysis Reverses Positive Direction in October

Reversing two months of increasing commercial real estate prices, all three of CoStar's "headline" Commercial Repeat-Sale Indices decreased in October, continuing the recent see-saw performance of commercial real estate pricing, according to CoStar Group's newly released Commercial Repeat-Sale Indicies (CCRSI).

CoStar's national all property type index declined 3.88% during October, giving back its 3.07% gain in September. The index representing all commercial properties and the broadest industry measure of commercial real estate transaction pricing, slipped to its lowest point since the index peaked in February of 2008. While still decreasing, the rate decline has begun to slow considerably. Since June of 2009 the rate decline has been reduced by half.

CoStar's general commercial real estate pricing index, representing smaller transactions that comprise the largest number of real estate transactions, experienced a larger monthly decline, 5.11%.

CoStar's investment grade commercial real estate pricing index, representing larger transactions that comprise the majority of the market on a dollar volume basis, experienced the smallest decline, 1.1%. The average deal size within the investment grade pricing index fell more than 63%, from more than $23 million in September to $8.4 million in October.

October's dollar volume for repeat property sales declined to one-half of September's dollar volume.

The high volatility apparent in the latest monthly update of CoStar's Commercial Repeat-Sale Indicies is indicative of two prominent trends. First, monthly swings in pricing, sales volumes and average transaction size are common in markets experiencing a turn.

Second, it reflects the tension in a market characterized by the majority of sales occurring at two ends of the spectrum - distress sales at the bottom end of prices, and keen investor appetite, especially among REITs, for higher quality properties in core markets at the top end of the market. We expect to begin to see the extremes in range of prices replaced with more modest and normal monthly price trends when the proportion of distress sales begins to slowly reduce...