Economy Watch: CRE’s Summer Finish

By Dees Stribling, Contributing Editor

The broader economy might have wobbled a little late in the summer this year, but that didn’t seem to have upset the commercial real estate markets that much, at least as of August. That’s the conclusion to be drawn from the latest CoStar Commercial Repeat Sales Indicies released on Friday. They cover CRE pricing as of August, based on data from 1,252 repeat sales that month. Commercial real estate fundamentals are strong for the main reason that fundamentals are ever strong: aggregate demand across the major property types still outpaces supply, CoStar says, and that’s keeping investors keenly interested in real estate as an asset class.

As of August, the two indicies that CoStar complies, the value-weighted U.S. Composite and the equal-weighted U.S. Composite, were both up for the month by 1.3 percent and 1 percent, respectively. For the 12 months ended in August, they were up 12.6 percent and 11.4 percent, respectively. In an era of low interest rates, that’s a strong return indeed for any investment. Smaller, lower-value properties are doing slightly better than larger, investment-grade properties, according to the data, but both classes are doing well.

For the four quarters ended as of the third quarter of 2015, net absorption across office, retail, and industrial totaled 611.4 million square feet, CoStar further reported, which is 20 percent more than in the four quarters ended as of 3Q 2014. That’s also the second-highest annualized absorption total since the onset of the recession in 2008. The office and industrial sectors turned in particularly strong performances during the last four quarters, averaging net absorption of 0.3 percent and 0.4 percent of inventory, respectively, while the retail sector averaged a more modest 0.2 percent as of 3Q 2015.

Also according to CoStar, the CRE investment volume was $79.5 billion year to date through August 2015 — a 32 percent increase compared with the same period in 2014, which suggests that ’15 could be another record year for commercial real estate acquisitions.  Both the high and low end of the market are attracting increased capital flows, with volume up by nearly 32 percent in both the Investment-Grade and General Commercial segments, the company reported.