The latest commercial property price report from MSCI Real Capital Analytics said that multifamily property prices were unchanged in July compared to the revised level of the month before. This is the second consecutive report where this has been the case. Multifamily property prices were up 0.4 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 prices flat
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. 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, while both multifamily property prices and general commercial property prices have stopped declining, they are increasingly falling behind their pre-pandemic trends. While the month-over-month price movements for the two property types have alternated between gain and loss for the last year, it has only been in the last 2 months that the year-over-year price changes have turned positive.
Multifamily property prices are now down 19.0 percent from their peak but are 12.5 percent above their level in January 2020. They are 16.2 percent below their pre-pandemic trend line.
Prices for all commercial property as a single asset class were up 0.6 percent month-over-month in July and were up 0.9 percent year-over-year. They are now 11.2 percent below their peak but are 13.0 percent above their level in January 2020. They are 13.5 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 transactions added to the dataset over the last two months have had a mixed impact on the recent month-over-month multifamily property price changes reported. Last month’s revisions made the month-over-month price changes appear better while this month’s revisions made them appear worse. However, even after the revisions, the chart shows an upward trend in monthly multifamily property price movements over the past 3 months.
The chart also shows that the recent revisions to the month-over-month pricing data for all commercial property considered as a single asset class painted a progressively brighter picture. While all three reports indicate that its month-over-month price movements were becoming less negative, the updates in the latest report indicate that prices have actually been rising for the last three months.
Other property prices rise
In July, MSCI found that prices rose for all the main property types they track. The CPPI for suburban offices rose 0.2 percent for the month while the CPPI for offices in CBDs rose 0.9 percent. Industrial property prices rose by 0.7 percent while prices for retail property rose 0.3 percent.
Retail property prices again rose by the greatest amount on a year-over-year basis with a 4.2 percent increase. Industrial property prices were up 3.4 percent while prices for suburban offices rose 0.2 percent and prices for offices in CBDs rose 1.9 percent.
Major metro commercial property prices higher
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 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 leveled out in recent months. In the latest report, major metro property prices are up 0.1 percent month-over-month but are still down 3.8 percent year-over-year. They are down 16.0 percent from their peak and are now 3.6 percent below their level in January 2020. They are 28.1 percent below their long-term trend.
The latest data shows that month-over-month changes in the CPPI for non-major markets have been positive for a full year. Year-over-year changes have been positive for 6 consecutive months and have been becoming steadily more positive. The non-major metro CPPI is up 0.5 percent month-over-month and up 2.6 percent year-over-year. It is down 9.1 percent from its peak but is 20.1 percent above its level in January 2020. The non-major metro CPPI is 7.4 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 market segments over the last 13 months along with the monthly price change data from the last two reports.
The chart shows that the latest data paints a more positive picture of the price changes over recent months for major metros than was reported last month or the month before. This is also true for the pricing data for non-major metros.
The major metro month-over-month price drop for May was initially reported to be 0.22 percent. It was revised to a decline of 0.33 percent last month but to a drop of only 0.05 percent this month. The non-major metro month-over-month price drop for May was initially reported to be 0.14 percent, but it was revised to a gain of 0.07 percent last month and to a gain of 0.26 percent this month.
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.
