The economic data is in and things are just heating up. In May of 2013, prices in the commercial real estate sector continued building on a strong recovery according to the CoStar Commercial Repeat-Sale Indices (CCRSI). According to CoStar, the indices measure the change in prices by using a repeat sales methodology. Simply put, when a commercial property is sold, the indices calculate the difference between that sale and the previous sale of the same property.

However, there are several indices used to give a clearer picture of the environment in commercial real estate. This past May, commercial real estate saw price growth across the board.

Beginning with the value-weighted U.S. Composite Index, a measure which is influenced by the fewer, but larger commercial real estate transactions. In May, the value-weighted index saw an increase of 0.7 percent, but that does not tell the entire story. From the low point of the index in 2010, the measure has increased by 41 percent. That’s a rate of about 3.4 percent per quarter.WEB-SoldSign-SubjecttoContract-WP_304

The other important measure in the CCRSI report is called the equal-weighted U.S. Composite Index. This measure is the counter-balance to the value-weighted, as it is heavily influenced by many smaller magnitude commercial sales. The equal-weighted index increased by 2 percent in May, bringing the measure to a 10 percent increase from it’s bottom in 2011. With this strong May number, there is reason to remain hopeful that this index may just be hitting it’s stride.

The second quarter of 2013 has also been extremely strong for Net Absorption, which measures the change in space for the three main commercial sub-categories: office, retail, and industrial. This measurement, however, has been strong for the past three years, indicating that the fundamentals of commercial real estate may be stronger than previously perceived. The investment grade, a part of the equal-weighted index that measures upper-middle tier properties, also grew by 2.6 percent in May and by 24.6 percent since a 2009 trough.

Perhaps the most optimistic data comes from the decline in distressed sales. No measurement points more strongly to a fundamental commercial real estate recovery. In April and May, properties sold at distressed prices decreased to 14.1 percent, this two-month average is the lowest it has been since 2008. Less properties sold at distressed prices indicates that prices are moving in an upwards direction, giving both buyers and sellers the necessary confidence to achieve stronger deals.

As those in the market continue to remain weary of economic headwinds, the data is pointing in the right direction. With rapid increase in prices, a bigger fear could possibly be pricing certain buyers out of the market. However, the fundamentals of the commercial real estate sectors are strong for the moment and the momentum seems to be in our favor.

Advertisements