Green Street Advisors

Commercial Property Price Index

Pan-European Commercial Property Price Index

May 1, 2020

Wide Bid-Ask Spread Points to Lower Values

The Green Street Commercial Property Price Index has decreased 7.5% from its recent pre-Covid peak. The decline in the index, which measures pricing of a broad swath of Pan-European commercial properties, was due to retail and office values. Industrial values are up slightly over the last quarter, but still 1% lower from the recent peak.

“The commercial real estate transaction market has largely come to a standstill as buyers and sellers adjust their underwriting expectations and try to agree on a fair price,” said Peter Papadakos, Managing Director at Green Street Advisors. “During periods of wide bid-ask spreads, asset values often move closer to the bid than the ask. There is little to no investor demand in the retail sector and waning investor demand for sub-prime office buildings today. However, high-quality office and most industrial assets are still likely to trade at punchy capital values per square meter.”

Take a look at our U.S. Commercial Property Price Index

How is our index different than others that track commercial property prices?

How is our index different than others that track commercial property prices?

Timeliness

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.

Green Street's Commercial Property Price Index is a time series of unleveraged Pan-European 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 average institutional quality properties, and its ability to capture changes in the aggregate value of the commercial property sector.

Green Street Commercial Property Price Index

Indexed to 100 in August 2007

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Core Sector Average is equally-weighted between the Industrial, Office, and Retail sectors.

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Change in Commercial Property Values

Amount property values have increased over this period

(as of 04/28/2020)



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.

Green Street's Pan-European Real Estate Analytics platform covers 25 of the most liquid European real estate markets across the industrial, office, and retail property sectors. The Commercial Property Price Index is a time series of unleveraged property values across these sectors and markets, and 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 average institutional quality properties, and its ability to capture changes in the aggregate value of the commercial property sector.

Institutional Quality

Institutional Quality

Average Institutional Quality

The index is based on Green Street's frequently updated estimates of price appreciation of the property portfolios owned by the REITs in its U.S. coverage universe. Since REITs own high-quality properties, the index measures the value of institutional-quality commercial real estate.

The index is based on Green Street's frequently updated estimates of price for the property portfolios of a typical commercial real estate investor. It is driven by the fundamental models maintained by the research team, which, in turn, are driven primarily by changes in market cap rates and net rental income.

Timely

Timely

Timeliness

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 several months old.

The Green Street index value is based on where commercial real estate would transact today. Other indexes, based on either closed transactions or formal appraisals, may reflect market prices from many months earlier.

Value-Weighted

Value-Weighted

Asset Value Weighted

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.

Each sector index is created by GDP weighting individual market indexes. The sector indexes are then equal weighted to create the Pan-European Commercial Property Index. Akin to familiar stock price indexes (e.g., S&P 500), GDP value weighting provides a gauge of aggregate (as opposed to average) values. Equal-weighted indexes, by contrast, put the same emphasis on a Dusseldorf industrial building as they do a trophy London office building.