A report from Real Capital Analytics (RCA) indicated that prices for multi-family properties rose 16.3% during the year through September. However, contrary to recent reports, apartments were overtaken by office and industrial buildings for the fastest rate of price appreciation year over year.

Definition of ICPP

Real Capital Analytics tracks an index they call the Commercial Property Price Index (CPPI). The index is calculated on the basis of the resale prices of properties with known sales prices and previous sales dates. The index represents the relative change in the price of the property over time rather than its absolute price. Note that because the properties are added to the RCA dataset every month, they recalculate the IPCPP until the start of the dataset.

Rising prices

In addition to the price growth rate of 16.3% over the previous 12 months, RCA reported that prices for multi-family properties rose 1.7% for the month of September. This compares to a monthly price increase of 2.0% and an annual increase of 14.1% for all types of commercial properties considered as a single asset class.

Multi-family property sales volume reached $ 178.5 billion in the first nine months of 2021. This sales volume is almost as high as seen for any full year since RCA began tracking this data in 2000 despite 3 months remaining this year.

Industrial property price appreciation was 1.9% for the month and 16.9% in the past 12 months, outpacing apartments. Office buildings as a single ownership category saw price appreciation of 2.5% for the month and 16.9% for the past 12 months, with suburban offices appreciating 20.2% in year-over-year. However, office buildings in the Central Business Districts (CBD) were again the worst performing commercial real estate sector that RCA is tracking, with prices rising just 0.3% for the month and falling prices. price of 1.2% over the previous 12 months. Office buildings within the CBD were the only category of commercial property tracked by RCA that is now priced lower than 12 months ago.

Monitoring price appreciation

The first chart below shows the year-over-year change in CPI values ​​for all commercial properties as a single asset class and for apartments. It shows that the price appreciation rate of multi-family properties was less affected by the turmoil induced by the pandemic last summer. However, the annual price appreciation of all commercial properties as a single asset class now almost matches that of multi-family properties.

The following chart takes another look at the data, this time focusing on the monthly rate of change in house prices. This chart shows an underlying cyclical trend in price appreciation data. It also shows that the price appreciation of multi-family properties has recently started to lag behind that of all commercial properties on a month-to-month basis.

Major subways reach a peak

The RCA report provides data comparing the price changes of commercial properties in 6 major metropolitan areas * compared to the rest of the country, although it does not separate apartments from other types of commercial properties in this comparison. The last graph below examines data based on the rate of month-to-month price appreciation since January 2014.

The chart shows that prices in secondary markets have recovered more quickly, albeit less monotonously, since the slowdown last year than those in major markets until recently. However, the monthly rate of price appreciation in major markets has now slowed. It will be worth watching how deep this slowdown gets and how long it lasts.

According to the figures, the appreciation of commercial real estate prices in major markets was 1.5% for the month and 13.2% for the year. The appreciation of commercial real estate prices in non-major markets was reported at 2.0% for the month and 16.1% for the year.

The full report provides more details on other types of commercial properties. Access to the RCA report can be obtained here.

* Major subways are Boston, Chicago, Los Angeles, New York, San Francisco, and Washington DC.