The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices in December were statistically unchanged from their level of the month before, breaking a string of 16 monthly declines. However, prices were down 8.4 percent from their level of one year before.
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 price declines moderating
The first chart, below, shows how the CPPI’s for all commercial property as a single asset class and for apartments have changed since January 2016. 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 performances from January 2012 to December 2019.
The chart shows that multifamily property prices are now 15.0 percent below the peak they reached in 2022 but they are still 19.2 percent above their level in January 2020, before the pandemic and the subsequent surge in inflation. While multifamily property prices did not fall in absolute terms in December, they did fall further behind the pre-pandemic price growth trend. Prices are now 3.8 percent below that trend.
Prices for all commercial property as a single asset class have been nearly unchanged for the last 6 months, with no monthly change as large as 0.1 percent. However, this means that the index for all commercial property is also falling farther behind the pre-pandemic trend. These prices are now 6.5 percent below their prior trend.
The next chart plots the month-over-month changes in the values of the CPPI since January 2016 for all commercial property as a single asset class and for apartments. The chart shows that, after rising sharply and then falling sharply in the wake of the pandemic, prices for both classes of property were unchanged this month.
The CPPIs are recalculated as more data arrives and the effects of these recalculations are illustrated in the next chart. The chart zooms in on the month-over-month CPPI change history since 2022 and includes last month’s data along with this month’s data. While changes to the all-property change history were relatively minor this month, the chart shows that significant changes were made to the value of the multifamily CPPI change history for the last several months. As in last month’s report, the changes significantly reduced the reported degree to which prices were reported to fall.
Industrial continues to out-perform
On a month-over-month basis, the industrial property class was again the only one to see prices rise in December, with a gain of 0.3 percent. Prices for office properties within central business districts (CBDs) fell 1.4 percent for the month while prices for suburban offices fell by 1.0 percent. Prices for retail property fell 0.1 percent.
Industrial property was again also the best performing property type on a year-over-year basis, managing a price gain of 0.5 percent. Prices for offices within CBDs were down 29.2 percent while prices for suburban offices fell 13.2 percent. Prices for retail property were down 5.5 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 2016 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 prices of commercial property in the 6 major metros never really experienced a post-covid boom, but they have shared in the more recent property price bust. The CPPI for major metro commercial property is now 17.2 percent below its long-term trend. By contrast, the CPPI for property in other markets is now less than 1.2 percent below trend.
The final chart plots the history of the month-over-month changes in the price indexes for the two property markets since January 2016. The chart shows that month-over-month price appreciation for major markets is now negative but rising. The chart also shows that price appreciation for the other metros has been positive for the last 4 months, although still below the appreciation levels seen for most of the pre-covid period.
By the numbers, price appreciation for commercial property in major metros was reported to be -0.1 percent for the month and -4.8 percent for the year. Price appreciation for commercial property in non-major markets was reported to be +0.3 percent month-over-month but -6.1 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.
