A new report from Real Capital Analytics (RCA) said that multifamily property prices rose 23.6 percent year-over-year In December. This is the fourth month in a row where the annual increase in the apartment price index set a record for RCA’s data set, which goes back to 2001.
Defining CPPI
Real Capital Analytics tracks an metric 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 rise at record rates
RCA reported that multifamily property prices were up 2.9 percent for the month of December. This is the sixth month in a row where the monthly rate of appreciation in the CPPI set a record for the data series. The CPPI for garden-style apartments rose by 25.8 percent year-over-year while the CPPI for mid-rise/high-rise properties was up 13.0 percent. Leading metros for price appreciation were Phoenix, Jacksonville, Las Vegas, Charlotte and Raleigh/Durham.
Price appreciation in December for all commercial property as a single asset class was 3.6 percent month-over-month and 22.9 percent year-over-year, both records.
Price appreciation for industrial properties was 3.3 percent for the month and 29.2 percent over the past 12 months, the highest rates of any commercial property type covered. Office buildings as a single property class experienced price appreciation of 1.0 percent for the month and 14.1 percent for the last 12 months, with suburban offices appreciating 14.2 percent year-over-year. Office buildings within central business districts (CBDs) were again the worst performing commercial property sector that RCA tracks, with a price increase of 0.3 percent for the month and 3.3 percent over the prior 12 months.
Tracking price appreciation
The first chart, below, plots the year-over-year change in the values of the CPPI since January 2012 for all commercial property as a single asset class and for apartments. The chart makes clear how unusual is the recent rapid rise in commercial and multifamily property prices.
The chart also shows the average rates of annual appreciation in the indexes for the two property classes. The average annual appreciation for apartments since January 2012 is 10.5 percent, while the average annual price appreciation rate for all commercial property as a single asset class is 8.1 percent.
Major metros continue to lag
The RCA report provides data comparing the price index 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, plots the year-over-year rate of price appreciation for the two types of properties since January 2012. It also plots the average rates of price appreciation for the two types of properties over that time period.
The chart shows that price appreciation in the non-major markets has recently outperformed that in the major markets, but the long-term average rates of price appreciation for the two types of properties are not that different.
By the numbers, price appreciation for commercial property in major markets was reported to be 1.7 percent for the month and 16.8 percent for the year. Price appreciation for commercial property in non-major markets was reported to be 3.6 percent for the month and 24.3 percent for the year. The long-term average annual price appreciation for the major markets was 7.7 percent while that for the non-major markets was 8.3 percent.
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.
