top-tier trade areas during the recovery. As a result, the Prime Retail Metros Index has now advanced 19.6% above its prior peak after increasing 9.4% in the 12-month period ending in June 2016.
HEALTHY FUNDAMENTALS SUPPORTED QUARTERLY PRICE GAINS IN OFFICE SECTOR. The U.S. Office Index increased 1.9% in the second quarter of 2016 and 7.5% in the 12-month period ending in June 2016, as office rent growth and occupancy rates have nearly reached the previous market peak. Price growth was higher in the Prime Office Metros Index, which advanced by a stronger 2.8% for the second quarter of 2016 and 11.6% for the 12-month period ending in June 2016.
U.S. INDUSTRIAL INDEX POSTED SOLID QUARTERLY GAIN. Industrial market fundamentals remained healthy through the second quarter of 2016 as vacancies dropped below their lowest point in the previous cycle while rents continued to increase at a rate of 6%, which was higher than rent growth in the other major property types for the 12-month period ending in June 2016. Reflecting this performance, the U.S. Industrial index advanced 1.9% in the second quarter and 6.1% in the 12-month period ending in June 2016. Core industrial markets remained in favor among investors as the Prime Industrial Metros Index advanced by 9.5% in the 12-month period ending in June 2016.
WITH 4.5% SECOND-QUARTER INCREASE, U.S. HOSPITALITY INDEX POSTED STRONGEST GROWTH RATE AMONG ALL PROPERTY INDICES. CCRSI’s hotel index was the only property type index to post double-digit annualized growth through June 2016. National hotel occupancies have climbed well above last cycle’s highs, fueling room rate and RevPAR growth as well as investor demand. While the Hospitality Index suffered the largest peak-to-trough decline in the last cycle, dropping 44.2%, it has now moved to within 1% of its prerecession peak.
STRONG DEMAND FOR DEVELOPMENT SITES BOOSTS U.S. LAND INDEX. The Land index advanced 1.8% in the second quarter of 2016 and 8% in the 12-month period ending in June 2016. Despite healthy recent gains, the Land Index, which did not reach its trough for this cycle until very late in the cycle in 2012, remains 13.6% below its previous peak.
Quarterly CCRSI Regional Results
NORTHEAST REGIONAL INDEX REMAINED FASTEST-GROWING IN 12-MONTH PERIOD ENDING IN JUNE 2016. Once again benefitting from a strong concentration of top-tier markets that have been a magnet for investment since early in the current cycle, the Northeast Composite Index advanced 1.8% in the second quarter of 2016 and 8.2% for the 12-month period ended in June 2016, pushing it 17.4% above its prerecession peak. All four property type indices (Office, Retail, Multifamily and Industrial) within the Northeast region have surpassed their prerecession peaks as well. The Northeast Multifamily and Retail Indices led pricing growth in the region and have soared past their prior peak pricing levels by 48.9% and 26.1%, respectively. Meanwhile, solid growth in the Northeast Office and Industrial Indices during the second quarter of 2016 propelled both above their prerecession peak levels, by 6.6% and 7.9%, respectively.
WEST REGION SURPASSED ITS PREVIOUS PEAK IN SECOND QUARTER. After advancing 1.3% in the second quarter of 2016 and 7.2% in the 12-month period ending in June 2016, CCRSI’s West Composite Index has now surpassed its peak in the last cycle by 0.6%. The West Multifamily Index has seen the strongest performance of the four property type indices within the region, growing 10% in the 12-month period ending in June 2016, the strongest growth rate for all 16 regional property type indices. Strong fundamentals in tech-driven markets, including San Francisco and San Jose, have supported such exceptional price growth within the West Multifamily Index.
PRICE GROWTH IN SOUTH REGION MIRRORS THE WEST. The South Composite Index increased 1.8% in the second quarter of 2016 and 7.3% in the 12-month period ending in June 2016. Similar to commercial property pricing trends in the West region, the South Multifamily Index led pricing growth in the South region, expanding 8.6% in the 12-month period ended in June 2016. Growth in the South Multifamily Index has been particularly strong, surpassing its prerecession peak by 7.9% in June 2016, the only property type index in the South region to do so. The South Multifamily Index also saw the steepest peak-to-trough decline (43.5%) of any property type in the region during the last downturn.
MIDWEST REGION PRICES REBOUND IN SECOND QUARTER. After falling 0.9% in the first quarter of 2016, the Midwest Composite Index bounced back in the second quarter of 2016, growing by 2.3% to post the strongest quarterly growth rate of the four major regions. Property prices in the Midwest region still lag other regions in the recovery, however. All four regional property indices remain below previous cyclical peak levels.
About the CoStar Commercial Repeat-Sale Indices
The CoStar Commercial Repeat-Sale Indices (CCRSI) is the most comprehensive and accurate measure of commercial real estate prices in the United States. In addition to the national Composite Index (presented in both equal-weighted and value-weighted versions), national Investment-Grade Index and national General Commercial Index, which we report monthly, we report quarterly on 30 sub-indices in the CoStar index family. The sub-indices include breakdowns by property sector (office, industrial, retail, multifamily, hospitality, and land), by region of the country (Northeast, South, Midwest, West), by transaction size and quality (general commercial, investment-grade), and by market size (composite index of the prime market areas in the country).
The CoStar indices are constructed using a repeat sales methodology, widely considered the most accurate measure of price changes for real estate. This methodology measures the movement in the prices of commercial properties by collecting data on actual transaction prices. When a property is sold more than one time, a sales pair is created. The prices from the first and second sales are then used to calculate price movement for the property. The aggregated price changes from all of the sales pairs are used to create a price index.
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