The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices rose 15.9 percent year-over-year in September and that they rose 0.2 percent from the month before. The year-over-year multifamily property price growth rate is down from that initially posted last month, continuing a string of declines which started last March.
Defining CPPI
MSCI tracks an index called 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 MSCI dataset each month, they recalculate the CPPI all the way back to the beginning of the data series.
Property price growth rates fall
Price appreciation in September for all commercial property as a single asset class was 11.1 percent year-over-year. The year-over-year rate of price appreciation for all commercial property as a single asset class peaked in January and has been steadily declining since then. Prices for all commercial property rose by less than 0.1 percent from the level of the previous month.
Price appreciation for industrial properties was 0.5 percent for the month and 18.1 percent over the past 12 months. Both of these rates of increase are down from those reported last month but they remain the highest of any major commercial property type covered in the report.
The poorest performing CPPI for a property type on a year-over-year basis was that for offices within central business districts (CBD). This index was down 0.1 percent for the month and up only 6.6 percent for the year. The CPPI for retail properties was unchanged for the month and up 11.8 percent for the year.
The poorest performing CPPI for a property category on a year-over-year basis was that for commercial property within the 6 major metros* discussed in the report. This index was down 0.5 percent for the month and up only 3.7 percent for the year.
Multifamily leads price appreciation
The first chart, below, plots the history of the CPPI for both apartments and for all commercial property as a single asset class since January 2012, when the recovery from the housing bust was underway. It shows that both multifamily property price appreciation and commercial property price appreciation were remarkably steady until the pandemic year of 2020. It also shows that price appreciation for both of these property classes accelerated in early 2021 and has only slowed in recent months.
The next chart plots the year-over-year changes in the values of the CPPI since January 2012 for all commercial property as a single asset class and for apartments. This chart shows the slowdowns in the year-over-year rates of price growth for both of these commercial property classes more clearly. While price appreciation is off its recent highs, it is still well above its long-term average for both property classes.
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 11.1 percent, while the average annual appreciation rate for all commercial property as a single asset class is 8.5 percent.
Major metros fall behind
The MSCI 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 next chart, below, plots the history of the price indexes since January 2012 for both market segments. It shows that the two price indexes rose in lockstep until 2021 when commercial property price appreciation in the non-major markets outpaced that in major markets. Currently, cumulative price appreciation in non-major markets since January 2012 is 17 percent higher than that in major markets.
The final chart plots the history of the year-over-year change in the price indexes for the two property markets since January 2012 along with the average rates of price appreciation for the two market segments for the period between January 2012 and December 2020. The latter two lines are nearly coincident.
The chart shows more clearly the recent edge that non-major markets have in their rate of year-over-year price appreciation. It also shows that, while the rates of price appreciation have recently fallen for both market segments, major market price appreciation is now well below its 9-year average leading up to 2021.
By the numbers, price appreciation for commercial property in major markets was reported to be -0.5 percent for the month and 3.7 percent for the year. Price appreciation for commercial property in non-major markets was reported to be up 0.3 percent month-over-month and 13.7 percent year-over-year. The average rates of price appreciation from 2012 through 2020 are 7.3 percent for major markets and 7.4 percent for non-major markets.
The full report provides more detail on other commercial property types. Access to the MSCI report can be obtained here.
*The major metros are Boston, Chicago, Los Angeles, New York, San Francisco and Washington DC.
