The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices were unchanged month-over-month in December from the revised level of the month before. However, prices were down 4.2 percent year-over-year.
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 price slide 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, 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 early 2022 but that the rate of decline has slowed recently.
Multifamily property prices are now down 19.6 percent from their peak but are still 11.9 percent above their level in January 2020. They are 14.1 percent below their pre-pandemic trend line.
Prices for all commercial property as a single asset class were also effectively unchanged month-over-month in December but they were down 0.7 percent year-over-year. They are now 11.8 percent below their peak but are 12.5 percent above their level in January 2020. They are 11.8 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 new transaction data added this month made a significant difference in the history of month-over-month changes in multifamily property prices over the last 6 months. While last month’s data showed prices continuing to decline, even at an accelerating rate, this month’s revisions put recent price movements closer to break-even.
Revisions to the month-over-month changes in the prices of all commercial property considered as a single asset class showed a more negative picture than did last month’s data. Instead of 6 months of small price gains, it shows three months of losses leading up to a very small gain this month.
Multifamily prices lower
While multifamily was the worse performing asset class last month, it is in the middle of the pack this month. The best performing asset class was retail, which saw a 1.1 percent price rise for the month. Prices for offices within central business districts (CBDs) were unchanged for the month while prices for industrial properties fell 0.4 percent and prices for suburban offices fell 0.5 percent.
This month, retail property displaced industrial property as the best performing property type on a year-over-year basis. Retail property prices rose 3.2 percent. Prices for industrial property also rose, gaining 2.7 percent. Prices for offices within CBDs were down 9.3 percent while prices for suburban offices fell 2.2 percent.
Major metro commercial property prices in steeper 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 0.9 percent month-over-month and 5.4 percent year-over-year. It has fallen 16.0 percent from its peak and is now 3.2 percent below its level in January 2020. It is 26.0 percent below its long-term trend.
The other-markets CPPI is up 0.3 percent month-over-month but down 0.1 percent year-over-year. It has now fallen 10.4 percent from its peak but is 18.7 percent above its level in January 2020. The non-major metro CPPI is 5.9 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 particularly significant revisions were made to last month’s pricing data for major markets, and that the changes made the price-change history look worse. The revisions changed the mid-year price gains to losses and made the late-year price declines several times larger. The revisions to the recent price change history for non-major markets were also to the down side, but they were not large enough to turn the recent price increases to losses.
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.
