Prices Up 1% Year over Year
Newport Beach, CA, June 6, 2017 — The Green Street Commercial Property Price Index decreased by one-half a percent in May. Over the past year, the index has risen only 1%, as higher cap rates have offset growing rental income.
“Cap rates have been creeping higher, and that’s been holding back values,” said Peter Rothemund, Senior Analyst at Green Street Advisors. “Pricing of retail and storage properties has been softest, while prices of industrial and medical office buildings continue to reach new highs.”
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. Learn more.
Change in Commercial Property Values
Amount property values have increased over this period
What makes our commercial property price index unique?
There are significant differences between the Green Street CPPI and other indices that track commercial property prices. Green Street’s CPPI is appraisal-based. 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.
The index is based on Green Street’s frequently updated estimates of private-market value for REIT portfolios across the five major property sectors (apartment, industrial, mall, office and strip retail – aggregate asset-value of $600 BN). Since REITs own high-quality properties, the index measures the value of institutional-quality commercial real estate.
Our index reflects changes in commercial property values 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.
We place more weight on high-quality properties, e.g. a New York skyscraper has a much greater impact than a suburban strip mall. Because our CPPI is value-weighted, it measures what’s happening to real estate prices in aggregate, similar to the Wilshire 5000 that measures what’s happening to the stock market in aggregate. Most property indices are equally-weighted.