Numbers Indicate Growth in Commercial Recovery in Early 2012

Recovery from the recession is becoming more widespread for commercial real estate properties, according to data released in April by commercial real estate research firm CoStar Group Inc.

"It is consistent with the trend we have seen over the last several months," said Dr. Ruijui Peng, creator of the CoStar Commercial Repeat-Sale Indices (CCRSI), in an interview with REIT.com. "Slow but steady price recovery in the general commercial sector indicates that recovery is more broad-based."

However, while the general commercial sector gained momentum, the numbers showed that investment grade real estate witnessed a decline. Peng characterized the decline as "more a seasonal dip than a regime change."

She said data show that while investment grade properties usually demonstrate increases throughout the year, numbers at the beginning of the year have shown a decline in pricing. Investment grade properties gave back a portion of last year's gains within the first two months of 2012, according to the index.

The Investment Grade Index declined by 6.6 percent in February 2012, similar to the 5.6 percent decrease recorded for the same index in February 2011, according to CoStar. The U.S. General Commercial Index was flat in February with a 0.2 percent decline but has since increased by 1.7 percent.

"While trending up since 2009, price reversal has been observed repeatedly during the first couple months of each of the last three years," Peng said. She added that the slight decrease is also due to investment grade prices being more volatile in general.

Despite the volatility, investment grade property prices have increased by 11.5 percent since their lowest point in late 2009 and still outperformed general commercial property prices, according to Peng.

"Due to the year-end rush of getting deals done, transaction volume tends to be light in the first quarter, which puts a downward pressure on price," she said. "While this year is no exception, the first two months' transaction volume of this year is well above the same period of last year."

Peng pointed out that the multifamily sector in the Northeast shows the strongest pricing performance, and she anticipates that there will be a continued growing demand for commercial real estate.

"Both market fundamentals and liquidities are improving," Peng said.