The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices in July were up 0.1 percent from their level of the month before but still down 12.2 percent from their level of one year before. The year-over-year rate of decline was the largest of any of the commercial property types tracked in the report. However multifamily property prices had the second largest month-over-month gain of the property types tracked.
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 recalculate the CPPI all the way back to the beginning of the data series.
Apartment prices remain above trend
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 values of 100 in January 2012. The chart also contains trend lines showing the straight-line average rates of price appreciation for the two asset classes based on their performance from January 2012 to December 2019.
The chart shows that multifamily property prices have fallen to near the long-term trend line, giving back their recent outsized gains. Multifamily property prices are now 1.7 percent above the long-term trend. However, their month-over-month gain in July was less than that of the trend line, meaning that multifamily property prices are still closing in on the trend.
Prices for all commercial property as a single asset class have been below the long-term trend line since March. However, they are now 2.4 percent below trend, slightly less than last month’s reading.
The next chart plots the month-over-month 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 month-over-month price changes for these classes of property were both positive in July for the first time since August 2022.
Other property prices generally lower
On a month-over-month basis, suburban office properties were the best performers with a price rise of 0.3 percent. Prices for industrial property fell 0.1 percent for the month, an improvement on last month’s 0.3 percent decline. Retail property prices fell 0.2 percent, a better performance than last month’s 0.6 percent decline.
Office properties within central business districts (CBDs) experienced a price decline of 0.6 percent. Offices in CBD’s remain the worst performing of the commercial property types tracked by MSCI over the past three-year and five-year time spans. It is the only commercial property type whose prices have declined on either a 3-year or a 5-year basis.
All property types tracked also saw price declines on a year-over-year basis. Industrial property was the best performing with a price drop of 1.7 percent. Prices for offices within CBD’s were down 9.3 percent while prices for suburban offices fell 7.5 percent. Prices for retail property were down 8.2 percent.
Commercial property prices remain below trend
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 relative price indexes since January 2012 for both market segments, along with trend lines based on straight-line fits to the changes in these indexes between January 2012 and December 2019. For purposes of this chart, both price indexes were set to a value of 100 for January 2012.
The chart shows that property prices within the major metros had been running slightly below trend even before the pandemic. After a brief bounce, they again fell below trend in June 2022 and have remained there since. Major market property prices are now 13.7 percent below trend, a slight improvement on last month’s report. Other market property prices remain 1.5 percent above their prior trend, slightly less than last month’s reading.
The final chart plots the history of the month-over-month changes in the price indexes for the two property markets since January 2012. The chart shows that month-over-month price appreciation major markets turned negative in May 2022 while price appreciation for other markets turned negative in August 2022. While still negative, both rates of appreciation are nearing positive territory.
By the numbers, price appreciation for commercial property in major metros was reported to be -0.2 percent for the month and -8.4 percent for the year. Price appreciation for commercial property in non-major markets was reported to be -0.1 month-over-month and -9.8 percent year-over-year.
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.
