A new report from Real Capital Analytics (RCA) said that multifamily property prices rose 23.2 percent year-over-year in February and that they rose 1.7 percent from the month before. The annual rate of increase is another new high for the RCA data series which goes back to December 2000.
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 rise at record rates
The 23.2 percent reported increase in the CPPI for apartments is considered a new record high for RCA’s data set. This extends the string of record high year-over-year appreciation in multifamily property prices to 6 months in a row.
Price appreciation in February for all commercial property as a single asset class was 0.8 percent month-over-month and 17.3 percent year-over-year.
Price appreciation for industrial properties was 1.9 percent for the month and 28.5 percent over the past 12 months, once again the highest rates of any commercial property type covered by RCA. Office buildings as a single property class experienced no price appreciation for the month but 10.3 percent price growth for the last 12 months. Suburban offices appreciated 10.1 percent year-over-year while office buildings within central business districts (CBDs) saw prices rise 4.7 percent over the prior 12 months, making them the worst performing commercial property sector that RCA tracks.
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 shows that the recent runup in prices for commercial property may be cresting, while the rate of apartment price growth is still rising on a year-over-year basis.
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 10.7 percent, while the average annual appreciation rate for all commercial property as a single asset class is 8.1 percent.
The next chart, below, plots the month-over-month change in the value of the CPPI since January 2012 for all commercial property as a single asset class and for apartments. The chart shows that the monthly rates of increases in the indexes have crested and are now declining.
Major metros lag
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 apartment prices from those of other commercial property types in this comparison. The next chart, below, plots the history of the price indexes for the two types of property since January 2001. The chart shows that the price appreciation of commercial property in the major metros outpaced that in the rest of the country over the first 20 years illustrated. However, in the last two years, price appreciation in the non-major metros has outperformed that in the major metros.
By the numbers, price appreciation for commercial property in major markets was reported to be 0.3 percent for the month and 12.9 percent for the year. Price appreciation for commercial property in non-major markets was reported to be 1.5 percent for the month and 21.9 percent for the year. The average annual price appreciation since January 2012 for the major markets was 7.6 percent while that for the non-major markets was 8.4 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.