The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices fell 0.7 percent in July from their level of the month before. This is larger than last month’s reported decline of 0.5 percent. Prices were down 8.4 percent from their level of one year ago.
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.
Multifamily property price decline moderates
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 the surge in multifamily property prices in the second year of the pandemic and their subsequent fall. Prices have now been falling steadily for two full years. Multifamily property prices are down 20.8 percent from their peak but are still 10.6 percent above their level in January 2020. They are 13.3 percent below their pre-pandemic trend line.
Prices for all commercial property as a single asset class are down 11.7 percent from their peak but are 13.0 percent above their level in January 2020. They are 10.0 percent below their pre-pandemic trend.
The next chart plots the month-over-month changes in the values of the CPPI since January 2022 for all commercial property as a single asset class and for apartments. It also includes the same metrics based on the data included in last month’s report.
The chart shows that updates to last month’s data were negative for both multifamily property and for commercial property price trends and that the revisions had noticeable effects on the last 5 months of data.
Multifamily property prices are shown to be declining and the rate of decline over the last several months is now seen to be higher than indicated by last month’s data. However, the rate of decline reported for July is slightly lower than the revised rate of decline for June in this month’s report.
The chart shows that overall commercial property prices have been rising for the last 3 months, although at a slower rate than indicated in last month’s report.
Multifamily trails all but CBD offices
July’s data indicate that the month-over-month decline in multifamily property prices was only exceeded by that for offices within central business districts (CBDs). Those prices declined 1.1 percent for the month.
Industrial property continued to lead in price growth with a rise of 0.8 percent for the month. Prices for retail property rose 0.2 percent for the month while prices for suburban offices rose 0.3 percent.
Industrial property continued to be the best performing property type on a year-over-year basis, with prices rising 9.1 percent. Prices for offices within CBDs were down 27.2 percent while prices for suburban offices fell 6.6 percent. Prices for retail property fell 0.8 percent year-over-year.
Major metro commercial property prices show upturn
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 values of 100 for January 2012.
The chart shows that the CPPI for major metro commercial property has fallen 11.6 percent from its peak but is now 2.2 percent above its level in January 2020. It is 20.8 percent below its long-term trend. The other markets CPPI has now fallen 11.3 percent from its peak but is 17.8 percent above its level in January 2020. The non-major metro CPPI is 5.3 percent below its pre-pandemic trend.
The final chart plots the history of the month-over-month changes in the price indexes for the two property markets since January 2022 along with last month’s monthly price change data.
The chart shows that revisions to the data on property prices in major markets was very slight. However, revisions to the data on non-major markets made a significant difference in the apparent pricing trend. While last month’s data showed small price gains for the prior 10 months, those gains have been turned to declines over the last 7 months by the updated data in this month’s report.
By the numbers, price appreciation for commercial property in major metros was reported to be 0.3 percent for the month but -2.0 percent for the year. Prices for commercial property in non-major markets were reported to be down 0.1 percent for the month and down 0.2 percent year-over-year.
The full report provides more detail on other commercial property types. Access to the MSCI Real Capital Analytics report can be obtained here.
*The major metros are Boston, Chicago, Los Angeles, New York, San Francisco and Washington DC.
