The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices fell 1.9 percent in March from their level of the month before. While this was again the largest month-over-month decline for any of the commercial property prices tracked in the report, it is less severe than last month’s decline of 2.7 percent. Multifamily property prices were reported to be down 10.3 percent year-over-year.
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 new properties are added to the MSCI dataset each month, they may recalculate the CPPI all the way back to the beginning of the data series.
Only industrial is positive
Prices for industrial property managed a gain of 0.1 percent for the month and office properties within central business districts (CBDs) managed to break even. All other property types saw their prices decline for the month.
After multifamily, the worst performing CPPI on a month-over-month basis was that for retail property. It fell 1.2 percent during the month. Suburban offices property prices were also down for the month, falling 1.0 percent.
On a year-over-year basis, only industrial property saw positive price growth, with its price index rising 3.3 percent. Prices for all commercial property as a single asset class fell 8.0 percent year-over-year in March. Prices for all commercial property as a single asset class fell by 1.3 percent from the level of the previous month.
Biggest rise, biggest fall
The first chart, below, shows how the CPPI’s for all commercial property and for apartments have changed since January 2012. To simplify the comparison, both CPPI’s have been normalized to a value of 100 in January 2012. The chart also contains trend lines showing the straight-line average rate of price appreciation for the two asset classes based on their performance from January 2012 to December 2019.
The chart shows that price appreciation significantly exceeded the previous trend over the last two years but that the recent price declines have brought pricing back close to the previous trend lines.
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. The chart shows that the year-over-year rate of price increases for both property classes peaked in early 2022. The latest data show that year-over-year price growth rates for both property classes have now been negative for four months in a row.
The chart also shows the average rates of annual appreciation in the indexes for the two property classes. The average annual multifamily property price appreciation since January 2012 is 10.5 percent, while the average annual appreciation rate for all commercial property as a single asset class is 7.8 percent.
Major metros fall further 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 along with trend lines based on straight-line fits to the changes in the indexes between January 2012 and December 2019.
The chart shows that the price appreciation in major metro areas and in other areas was very similar in the period after the housing bust up to the COVID pandemic. While prices in both major and non-major markets dipped soon after the pandemic arrived and then rose, the rise in non-major market prices greatly exceeded that in major markets. Although prices in both regions have fallen lately, prices in non-major markets are still 6 percent above their pre-COVID trend while those in major markets are now 11 percent below.
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 February 2019.
The chart shows that the rates of year-over-year price appreciation fell throughout 2022. Year-over-year price appreciation has been negative for major markets since October 2022. It has been negative for non-major markets since December 2022.
By the numbers, price appreciation for commercial property in major metros was reported to be -1.0 percent for the month and -9.0 percent for the year. Price appreciation for commercial property in non-major markets was reported to be -1.1 month-over-month and -6.4 percent year-over-year. The average rates of price appreciation from 2012 through 2019 are 7.6 percent for major metros and 7.5 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.
