A new report from Real Capital Analytics (RCA) said that multifamily property prices rose 16.8 percent year-over-year through October. This is the highest rate ever seen in their data set, which goes back to 2001.
Real Capital Analytics tracks an index they call the Commercial Property Price Index (CPPI). The index is computed based on the resale prices of properties whose earlier sales prices and sales dates are known. The index represents the relative change in the price of property over time rather than its absolute price. Note that, as properties are added to the RCA dataset each month, they recalculate the CPPI all the way back to the beginning of the data series.
Prices up across the board
RCA reported that multifamily property prices were up 1.4 percent for the month of October. This is down from the 1.7 percent increase seen in September. The volume of multifamily property sales was over $200 billion through the first ten months of 2021. This sales volume is nearly twice the level seen in all of 2020.
Price appreciation in October for all commercial property as a single asset class was 1.7 percent month-over-month and 15.9 percent year-over-year.
Price appreciation for industrial properties was 1.9 percent for the month and 18.9 percent over the past 12 months, once again outpacing apartments. Office buildings as a single property class experienced price appreciation of 1.0 percent for the month and 13.7 percent for the last 12 months, with suburban offices appreciating 15.6 percent year-over-year. However, office buildings within central business districts (CBDs) were again the worst performing commercial property sector that RCA tracks, with a price increase of 0.4 percent for the month and 0.9 percent over the prior 12 months.
Tracking price appreciation
The first chart, below, plots the year-over-year changes in the values of the CPPI for all commercial property as a single asset class and for apartments. The chart makes clear the extent that recent commercial and multifamily property price rises have exceeded long term trends.
The next chart takes another look at the data, this time focusing on the monthly rate of property price changes. This chart shows that the recent increases in the monthly rate of commercial and multifamily property price rises appear to have crested.
Major metros reach a crest
The RCA report provides data comparing the price changes of commercial property in 6 major metro areas* against those in the rest of the country, although it does not separate out apartments from other commercial property types in this comparison. The last chart, below, looks at the data based on the month-over-month rate of price appreciation since January 2014.
The chart shows that prices in the non-major markets are continuing to see rising levels of year-over-year price appreciation while the rate of price growth in the major markets seems to have reached a plateau.
By the numbers, price appreciation for commercial property in major markets was reported to be 0.5 percent for the month and 10.6 percent for the year. Price appreciation for commercial property in non-major markets was reported to be 2.2 percent for the month and 17.6 percent for the year
The full report provides more detail on other commercial property types. Access to the RCA report can be obtained here.
*The major metros are Boston, Chicago, Los Angeles, New York, San Francisco and Washington DC.