Commercial property prices keep dropping, but rate of decline slows

Industrial shows stability as only asset class with yearly, monthly price growth

The RCA Commercial Property Price Index (CPPI) maintained by MSCI Real Assets saw another big drop in October, but the pace of regression is slowing.

The CPPI was essentially flat from September and sank 8% year over year, continuing a monthslong trend of annualized declines when it comes to U.S. commercial real estate prices. Among property types, year-over-year price weakness was most prominent in apartments during October, with the asset class experiencing a 13.7% yearly drop in the CPPI.

Multifamily prices have suffered somewhat in the short term as well, falling 1% month over month, again the most among all asset classes. MSCI attributed the recent price softness in the sector to the spike in mortgage interest rates, although the strength of apartment pricing throughout the COVID-19 era has kept the apartment subindex 15% above the level seen at the start of the pandemic in early 2020.

Meanwhile, the office sector continues to lag, with prices down 9.5% annually and 0.5% monthly. MSCI noted, however, that office activity actually improved in October 2023 compared to the same month last year. The retail sector, despite showing some signs of life over the past few months, also remains behind in the pricing department. Retail property prices in October were down 7.2% yearly, marking the 10th straight month of annualized declines.

Despite broad price weakness among asset classes, however, October’s 8% total drop actually constitutes an improvement compared to earlier this year. At the midpoint of 2023, prices were falling at a year-over-year clip of 10%.

The industrial sector remains a buoy for overall pricing as the lone major property type to log any price growth on an annual or monthly basis. Industrial prices were up 1.5% annually and 0.6% monthly in October, with the month-over-month figure offering particular hope. It equates to a yearly growth rate of 7.5%, signaling continued stability. The industrial subindex has now seen monthly increases since May after experiencing minor month-over-month decreases earlier in the year.


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