“I never said most of the things I said”
Yogi Berra
National Real Estate Investor / Elaine Misonzhnik / Oct 16, 2014Elaine Misonzhnik
Prices on top retail assets are now near and, in some cases, past the peak of the previous cycle, according to recent Commercial Property Price Indices from industry research firms. While the retail sector as a whole has trailed behind multifamily and office sectors in price recovery, class-A retail centers have bounced back to previous highs.
The October all-property composite for Moody’s/RCA Commercial Property Price Indices (CPPI) showed that U.S. commercial real estate assets recovered 99.5 percent of their post-financial crisis losses. The index stands at 181.30, with December 2000 values as the benchmark. The apartment sector has been ahead of the curve, with prices for apartment properties in major markets surging past their pre-crisis peaks. They have now recovered 278 percent of their losses peak to trough (standing at 217.12), followed by office buildings in Central Business Districts (CBDs), which have recovered 141 percent of their losses. The CBD office index sits at 228.10.
Retail asset prices, on the other hand, remain a bit below their previous peak, according to Moody’s/RCA CPPI. Prices on retail assets in major markets recovered 92.0 percent of their post-crisis losses, while prices for retail buildings in smaller markets trail behind all other property types, with 46.2 percent in loss recovery. Overall, the retail sector has recovered 60.4 percent of its pricing, with the index standing at 155.56.
Moody’s/RCA CPPI is based on repeat sales closed two months prior to the issue date of the report.
Green Street Advisors, another research firm that tracks commercial real estate prices, reports that as of September, prices on regional malls reached 125.5 and prices on strip centers 110.9 on its CPPI. Green Street uses year-end 2007 as the benchmark of 100 for regional mall prices and the summer of 2007 as the benchmark of 100 for strip centers. Compared to the peak of the market, regional mall prices have recovered 26 percent of their losses, according to Green Street’s CPPI, while strip center prices have recovered 11 percent of their losses.
Overall, commercial property prices have recovered 12 percent of their value since market peak, Green Street reports, with malls leading the way. Apartment building have also shown a strong price resurgence, reaching 115.5 on the index in September and recovering 15 percent of their losses since the sector’s peak in August 2007.
Still bifurcated
Meanwhile, the weighted value average reported for the retail sector by the CoStar Group, a Washington, D.C.-based research firm, reached 175 in June, the most recent period for which statistics are available. CoStar uses December 2000 as the benchmark of 100 for retail properties. The composite index for all commercial property types in June was 173, measured against a benchmark of 100 in February 2004.
The figures show that prices on retail assets rose 35 percent since the trough of the cycle, and in June were just 8.7 percent below the previous market peak, according to Ryan McCullough, CoStar’s senior real estate economist. McCullough adds, however, that price recovery has varied widely, based on the quality of the asset and the trade area in which it’s located.
Class-A retail assets (the top quintile of the sector) are now priced equivalent to the previous market peak, he says. “On the other hand, assets in the bottom two quintiles, representing 40 percent of the retail universe, have had very little pricing recovery to date and their average asset price is about 32 percent below peak pricing. In summary, investors have been aggressively pushing up pricing at the best centers and have overlooked the worst.”
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