The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices fell 0.3 percent from their level of the month before in November. Prices were down 5.7 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 property transactions are added to the MSCI dataset each month, they recalculate the CPPI for the months in which the transactions occurred, potentially all the way back to the beginning of the data series.
Multifamily property prices lower
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, a period in which property price appreciation was remarkably steady.
The chart shows that both multifamily property prices and general commercial property prices have been falling since their mid-pandemic peaks in 2022. While multifamily property prices have continued to fall, commercial property prices overall have stabilized and may even be trending higher.
Multifamily property prices are now down 20.4 percent from their peak but are still 11.0 percent above their level in January 2020. They are 14.5 percent below their pre-pandemic trend line.
Prices for all commercial property as a single asset class are down 11.4 percent from their peak but are 13.2 percent above their level in January 2020. They are 11.0 percent below their pre-pandemic trend.
The next chart plots the month-over-month changes in the values of the CPPI over the last 13 months 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 and the report from the month before that.
The chart shows that the revisions to the history of month-over-month changes in multifamily property prices were relatively minor while those to overall commercial property price movements were more substantial. However, the report does not indicate how many new sales transactions for earlier months were recorded or how many of these transactions were for multifamily property. It is possible that there were only small changes to the multifamily property price movements because few new sales transactions were identified for the earlier months.
This month’s multifamily property price change data nearly matches that for last month. The chart shows that the trend of smaller month-over-month price declines seen between February and August has been broken. Over the last 4 months, the rate of price decline has stabilized.
Revisions to the month-over-month changes in the prices of all commercial property considered as a single asset class were more significant. For example, the September’s month-over-month price change was revised from a loss of 0.34 precent in October’s report to a gain of 0.08 percent in this month’s report. This month’s report actually indicates that commercial property prices have been rising since June.
Multifamily prices lower
November’s data indicate that multifamily was the only property type whose prices declined month-over-month in November, although prices for suburban offices and for industrial property were unchanged for the month.
Retail property saw the largest monthly price gain in November with a rise of 0.5 percent. Prices for office property within CBD’s grew at a rate of 0.4 percent for the month.
Industrial property continued to be the best performing property type on a year-over-year basis, with prices rising 4.7 percent. Prices for offices within CBDs were down 12.3 percent while prices for suburban offices fell 0.8 percent. Prices for retail property rose 0.7 percent.
Major-metro commercial property prices continue decline
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 is down 0.2 percent month-over-month and 1.8 percent year-over-year. It has fallen 12.6 percent from its peak and is now 0.8 percent above its level in January 2020. It is 22.9 percent below its long-term trend.
The other-markets CPPI is up 0.5 percent month-over-month but down 0.2 percent year-over-year. It has now fallen 10.6 percent from its peak but is 18.7 percent above its level in January 2020. The non-major metro CPPI is 6.0 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 over the last 13 months along with last month’s monthly price change data.
The chart shows that revisions to last month’s pricing data made major market price history look somewhat better. The revisions also made non-major market price history look better, but the impact was confined to the last 3 months
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.
