Property pricing trends continued their upward climb in October, according to a new report from the CoStar Group.
The CoStar Commercial Repeat Sale Indices (CCRSI) said commercial property values, including those for Philadelphia office space and Philadelphia retail space were enhanced by minimal speculative construction, a more established economic recovery and the combination of rising rental rates and low benchmark interest rates, such as the 10-year Treasury.
CoStar noted increases in the CCRSI’s two broadest measures of aggregate pricing for commercial properties — the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index. The two measures rose 0.8% and 0.9%, respectively, in October 2014.
With steady gain in recent months, the value-weighted U.S. Composite Index now stands at a record high 3.9% above its 2007 prerecession peak. This achievement reflects strong competition among investors for large, high-end commercial properties, including Philly office space and Philly retail space.
The equal-weighted U.S. Composite Index experienced solid gains that returned it to 2005 levels. However this index, which is influenced by smaller property sales, is still 15% below its 2007 prerecession high, according to CoStar. The improvement in the equal-weighted index stems from investors’ search for higher yields in secondary markets and property types after pricing for commercial property in core markets rose above pre-recession levels, CoStar said.
The U.S. Investment Grade segment of the equal-weighted Index grew by 15.8% for the year ending October 2014, while the U.S. General Commercial segment, which is comprised of lower-tier properties, increased by a strong 14.6% during the same 12-month period, CoStar noted.
For the 12 months ending October 2014, CoStar’s repeat-sale index tracked composite pair volume of nearly $78 billion, a notable 23% upsurge from the same 12-month period a year before. This acceleration in property sales comes on the heels of similar composite pair volume increases of 22% in 2013 and 25% in 2012, a clear indication that investment flows into real estate remain strong, CoStar said. The General Commercial segment’s repeat sale pair volume rose 27% for the year ending October 2014, edging out 21% growth in the Investment Grade segment as capital continues to move out on the risk spectrum, according to CoStar.
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