CoStar reported that its value-weighted index of multifamily property prices fell 15.3 percent year-over-year in May. However, this index was unchanged month-over-month.
The value-weighted index of non-multifamily commercial property rose by 0.6 percent, year-over-year, in May. This index was also up month-over-month, rising 1.4 percent. The other commercial property types tracked by CoStar are office, retail, industrial and hospitality.
For more information on the CoStar Commercial Repeat Sales Indexes (CCRSI’s), please see the section at the bottom of this report.
Multifamily property prices down YoY
The first chart, below, shows the history of the value-weighted CCRSI’s since January 2012 for multifamily property and for all other commercial property considered as a single asset class. It also shows trend lines for the growth in the two CCRSI’s based on their growth in the period from January 2012 to January 2020. The indexes are normalized so that their values in December 2000 are set to 100.
The chart shows that the multifamily property prices are now well below the peak they reached in June 2022. Prices are now 16.7 percent below their maximums, but they are still 3.8 percent above the long-term trend line. Other commercial property prices are 3.5 percent below their peak levels and are 0.5 percent below the trend line.
The second chart shows the year-over-year change in the value-weighted multifamily property price index and that for all other commercial property types since January 2012. It also shows the average rates of annual price growth for the two property classes over that time.
May marked 6 months in a row of increasing rates of year-over-year decline in multifamily property prices. However, as noted above, multifamily property prices were unchanged in May so the accelerating rate of year-over-year decline is more reflective of the rapidly rising prices of a year ago rather than of falling prices this year.
Non-multifamily commercial property prices have risen, if fractionally, year-over-year for three of the last four months.
The average annual increase in multifamily property prices over the period shown in the chart has been 9.1 percent while that of other commercial property prices has been 6.3 percent.
Transaction volumes rebound
An issue with monthly commercial property sales transaction volume reporting is that CoStar usually identifies additional transactions to tabulate over the next few months after the initial report, particularly in the second report. These extra transactions tend to make initial comparisons to the prior month’s transaction levels worse, especially when comparing to the revised level of the month before.
The effect of these revisions is shown in the next chart, below. The cluster of bars at the left side of the chart represent the 6 reports that have been made so far as to the volume of transactions for December 2022. The preliminary volume reported for December 2022 in January 2023 was 1,495 transactions. This count was revised to 1,664 transactions in the February report and to 1,691 transactions in the March report. The current (June) report puts the December transaction count at 1,729. The 16 percent additional transactions identified between January and June can change the assessment of how December’s transaction volume stacks up against that of any month to which it is being compared. Making comparisons based on early reports will tend to accentuate any volume decline and to reduce any volume increase.
CoStar found that transaction volumes rose during May. This was true both based on the count of the number of transactions and also based on the dollar volume of transactions.
The preliminary number of commercial property sales transactions reported for May was up 22 percent from the preliminary level reported for the month before. It was up 10.8 percent month-over-month from the revised level of the month before contained in the latest report.
The preliminary dollar volume of commercial property sales transactions was reported to rise 17.0 percent from the revised level of the month before. It was up 25.6 percent from the preliminary level reported last month.
The full report discusses all commercial property types. While the CoStar report provides information on transaction volumes, it does not break out multifamily transactions. The latest CoStar report can be found here.
CCRSI defined
The CoStar report focuses on a relative measure of property prices called the CoStar Commercial Repeat Sales Index (CCRSI). The index is computed based on the resale 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. CoStar identified 1,173 repeat sale pairs in May for all property types. These sales pairs were used to calculate the results quoted here.
CoStar computes CCRSI’s for a variety of property groupings, combining them by cost, region, property type or other factors. The value-weighted index is more heavily influenced by transactions of expensive properties than is CoStar’s equal-weighted index. The value-weighted index is the focus of this report because it is an index whose value is reported monthly and for which CoStar breaks out multifamily property as a separate category.
