The year 2015 is shaping up to be one of the best years ever for the U.S. commercial real estate market, based on November 2015 figures that show market fundamentals reflecting healthy levels of absorption and continued rental gains during the month supporting broad price gains, even as construction levels for office, retail and warehouse space have started a slow-paced increase, according to a new CoStar news release.
Both the value-weighted U.S. Composite Index and the equal-weighted version rose by 0.9% in November 2015. These two versions of the U.S. Composite Index represent the two broadest measures of aggregate pricing for commercial properties within the CoStar Commercial Repeat-Sale Index (CCRSI), the release said. The increase was partly responsible for the annual gains in the indices of 12.2% in the value weighted version and 11.7% in the equal-weighted version for the year ended November 2015.
Total property sales volume through November indicates 2015 volume will easily surpass 2014’s record sales volume for the CCRSI, CoStar said. Composite sales-pair volume reached $110.2 billion for the 11 months ending in November 2015, up 25% from the same period a year earlier.
Commercial property pricing also soared to new heights, particularly for high-quality assets in core markets, the news release reported. The value-weighted U.S. Composite Index in November 2015 was up 18.4% over its 2007 peak. The equal-weighted U.S. Composite Index for the same time period experienced “solid growth” but stood at 4% below its prior peak, CoStar said. Pricing for the equal-weighted U.S. Composite Index, which covers smaller properties in second-tier locations, was less robust than in the value-weighted version because of a delayed start in its recovery.
The Investment-Grade segment of the equal-weighted U.S. Composite Index inched to within 1% of its prior peak, the release noted. The Investment-Grade segment reflects the performance of high-quality properties. The General Commercial Index was unmoved, standing at 4.6% off its prior peak.
Among the three major commercial property types – office, retail, and industrial, net absorption increased to 649.2 million square feet for the full 12-month period of 2015, up 15.5% from the year prior. It was the highest calendar year annual total since 2007, according to CoStar.
Leasing activity was most active in the higher-quality, investment-grade properties last year, the news release said. Net absorption was up 23% from 2014 in the CCRSI’s investment-grade segment, compared to flat net absorption in the general commercial segment.
In the office and industrial sectors, the investment-grade segment experienced a notably strong performance with net absorption averaging 0.5% of total inventory for the office sector and 0.4% for the industrial sectors in 2015, according to CoStar. Net absorption in the retail sector was a more modest 0.2% of total inventory in 2015, despite muted inventory additions.
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