The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices were up 0.7 percent month-over-month in January from the revised level of the month before. However, prices were down 1.6 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 picture brightens
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 multifamily property prices have been rising since February of last year. Over the last 5 months, their rate of increase has nearly matched that of the pre-pandemic trend. It also shows that general commercial property prices have been nearly static over most of the past year, but they seem to have started an upward trend over the past few months.
Multifamily property prices are now down 18.0 percent from their peak but are 14.2 percent above their level in January 2020. They are 12.8 percent below their pre-pandemic trend line.
Prices for all commercial property as a single asset class were up 0.5 percent month-over-month in January and were up 0.3 percent year-over-year. They are now 11.1 percent below their peak but are 13.3 percent above their level in January 2020. They are 11.6 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 over the last two months resulted in an increasingly positive view of multifamily property price trends. Last month’s revisions reduced the recent rate of price declines while this month’s revisions indicate that multifamily property prices have been rising since last September.
Revisions to the month-over-month changes in the prices of all commercial property considered as a single asset class also created a more positive picture of pricing trends. It shows three months of solid price gains.
Most property prices rise
This month’s report saw the prices of most commercial property categories rise. The exception was offices within central business districts (CBDs) whose prices continued to fall month-over-month with a 0.6 percent drop. The best performing asset class was retail, which saw a 1.5 percent price rise for the month. Prices for suburban offices eked out a 0.1 percent gain for the month while prices for industrial properties were unchanged.
This month, retail property displaced industrial property for the best performing property type on a year-over-year basis, with prices rising 5.0 percent. Prices for industrial property rose 3.4 percent. Prices for offices within CBDs were down 10.0 percent while prices for suburban offices fell 1.5 percent.
Major metro commercial property prices continue to 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 values of 100 for January 2012.
The chart shows that the CPPI for major metro commercial property continued to fall while prices for property in other markets rose. Major-market prices are down 0.4 percent month-over-month and 4.1 percent year-over-year. They are down 15.2 percent from their peak and are now 2.4 percent below their level in January 2020. They are 25.6 percent below their long-term trend.
The other-markets CPPI is up 0.6 percent month-over-month and up 0.8 percent year-over-year. It has now fallen 9.8 percent from its peak but is 19.5 percent above its level in January 2020. The non-major metro CPPI is 5.6 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 the monthly price change data from the last two reports.
The chart shows that the revisions made to last month’s pricing data indicated that the recent price declines for major markets were more severe than originally reported while this month’s data indicates that they were less severe. A similar phenomenon was observed for the data for the other metros. The recent rate of price gains in the latest report is somewhere between the rates of gain indicated in the prior two reports.
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.
