February 4, 2016 — The Green Street Commercial Property Price Index was essentially unchanged in January. Pricing of lodging properties, which is not included in the overall index, appears to have taken a downward turn of late.
“Property values posted robust gains in 2015, like they did in each of the prior five years. That said, investors would be wise to discount a continuation of that streak in 2016,” said Peter Rothemund, Senior Analyst at Green Street Advisors. “Whether compared to yields available on long-dated investment grade bonds or riskier junk bonds, cap rates on commercial property look too low at today’s levels. Higher cap rates — which mean lower property values — seem like a very real possibility in 2016.”
Green Street’s Commercial Property Price Index is a
time series of unleveraged U.S. commercial property
values that captures the prices at which commercial
real estate transactions are currently being negotiated
and contracted. Features that differentiate this index
are its timeliness, its emphasis on high-quality
properties, and its ability to capture changes in the
aggregate value of the commercial property sector.
Joseph Harvey, President & CIO, Cohen & Steers
IPE Real Estate Magazine August 10, 2010
Appraisal-based indices are only as good as the valuation estimates used to construct them, and Green Street has long devoted sizable resources to deriving accurate estimates of the values of the properties owned by REITs. Most other indices are transaction-based.
Our index measures what’s happening to the value of REIT-owned properties. As such, it’s a good gauge of what’s going on in the market for institutional-quality properties.
Our index is value-weighted. This means that we place more weight on high-value properties, e.g. a New York skyscraper has a lot bigger impact than a suburban strip mall. Because our index is value-weighted, it measures what’s happening to real estate values in aggregate, much like the Wilshire 5000 and other broad value-weighted stock market indices measure what’s happening to the stock market in aggregate. Most property indices are equally-weighted.
Our index reflects changes in valuations as soon as we hear about them. That’s one of the benefits of an appraisal-based index; we don’t have to wait for deals to close. Most other indices are based on closed transactions, so they convey information from several months earlier.
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