MSCI: Multifamily property price drops moderate

multifamily property prices continue to fall

The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices in April fell 0.3 percent from their level of the month before. This is less than last month’s reported decline of 0.9 percent. Prices were down 6.9 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 growth revised higher

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.

multifamily property price history

The chart shows that multifamily property prices are continuing to fall. The current monthly rate of decline translates to an annualized rate of 4.1 percent. This is less than half the rate of decline observed last month. It is also lower than the observed year-over-year decline.

Multifamily property prices have now fallen 18.3 percent from their peak but are still 14.3 percent above their level in January 2020. They are also 9.3 percent below their pre-pandemic trend. Prices for all commercial property as a single asset class are down 12.1 percent from their peak but are 12.6 percent above their level in January 2020. They are 9.2 percent below their pre-pandemic trend.

The next chart plots the month-over-month changes in the values of the CPPI since January 2020 for all commercial property as a single asset class and for apartments. It also includes the same values based on the data included in last month’s CPPI report. The chart shows that there were only small changes to the data for all property but there were noticeable upward revisions to the month-over-month data for apartments.

month-over-month change in multifamily property prices

Industrial is the bright spot

Both industrial property and suburban office property saw their prices rise in April, as prices for retail property again fell into month-over-month decline. Industrial prices rose 0.6 percent while suburban office property prices rose 0.5 percent. Retail prices fell 0.3 percent from their levels of the month before. Prices for office properties within central business districts (CBDs) again had the largest monthly decline, falling 2.3 percent.

Industrial property was also the best performing on a year-over-year basis, rising 6.0 percent. Prices for offices within CBDs were down 33.9 percent while prices for suburban offices fell 7.8 percent. Prices for retail property were down 2.6 percent.

Major metro commercial property prices continue fall

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.

commercial property price history

The chart shows that the CPPI for major metro commercial property has fallen 13.9 percent from its peak and is now 0.4 percent below its level in January 2020. It is 21.9 percent below its long-term trend. By contrast, the CPPI for property in other markets has been slowly rising for the last 8 months, although at a slower rate than its pre-pandemic trend. The other markets CPPI has now fallen 10.1 percent from its peak but is 19.8 percent above its level in January 2020. The non-major metro CPPI is 2.8 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 had its recent low point at -0.60 percent in January but has improved since then. The chart also shows that price appreciation for the other metros has been only marginally positive recently, but moved further into positive territory this month.

month-over-month commercial property price changes

By the numbers, price appreciation for commercial property in major metros was reported to be -0.4 percent for the month and -5.5 percent for the year. Prices for commercial property in non-major markets were reported to be up 0.3 percent for the month but still down 0.6 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.