But values are still at a near record high.
After 17 straight months of increases, the headline rate for US commercial real estate property price growth finally slowed between February and March 2022, according to Real Capital Analytics. The company’s CPPI national all-property index dropped 0.4% was the first month-over-month decrease since June 2020.
However, the index was still up 17.4% over the previous year. A one-month change doesn’t indicate an ongoing trend.
“This pace of growth would be fantastic in any normal period, but it is no longer climbing at the average 300 bps of additional growth each quarter seen since Q4 ’20,” the report explained. “Some element of this deceleration in price growth is a function of the easing of fear that dominated with Covid-19. It is not clear how much of the deceleration is due to the economic challenges arising in March of this year.”
The RCA CPPI (Commercial Property Price Indices) are based on transactions and RCA claims they “accurately measure commercial real estate price movements using repeat-sales regression methodology.”
Year-over-year growth rates vary significantly by property type. The top market was delivered by industrial and 30.1% growth. But quarterly growth has been slowing for the category from the peak of 8.1% during each of the last four months. Apartments took second place with an 22.4% increase.
Office was at the bottom of the stack, with central business district locations showing 7.5% growth and suburban, 9.3%. “The spread between suburban office and CBD office growth has narrowed since its peak in Q3 ’21, as suburban office price increases have weakened and CBD prices have strengthened,” the report noted.
Although it had been challenged during the pandemic, retail was up 14.6% over the last year.
RCA tracks a group of six major metros—Boston, Chicago, Los Angeles, New York, San Francisco, and Washington DC—and groups all secondary and tertiary markets together as non-major metros. The former was up 12.7% year-over-year and 0.4% between February and March. The non-major metros had an annual jump of 18.8%, likely explained by demographic shifts that have strongly influenced property markets, especially in the Sun Belt and West. However, that group was down 0.4% from February.
Perhaps a more interesting comparison, though, is a three-year look, which provides a pre- versus post-pandemic snapshot. Industrial and apartment were again numbers one and two, with 57.8% and 47.6% respective growth. Retail saw an 18.7% lift. Central business district and suburban office saw gains of 10.2% and 20.1%. For major and nonmajor metros across all types, growth was 23.8% and 39.5%.