Report Finds Commercial Real Estate Prices Up

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U.S. commercial real estate prices posted the largest gain this decade in the first quarter, as prices were up for all major property types, said the National Real Estate Index.

Claiming the commercial real estate market "is back," the research firm said its composite price index increased 1.8 percent in the quarter. That comes on the heels of a 1.1 percent gain in the previous quarter and marks the fourth consecutive quarter the index has risen, gaining 3.0 percent for the 12 months ended March 31.

Price gains continue to be chalked up mainly in the economically strong Sunbelt states, led by a surge in apartment property values, and in the Western states outside of California, National Real Estate said in its quarterly study.

"Although apartments are clearly the pacesetter, perhaps the most encouraging development in the first quarter is that statistically significant gains are also now occurring in other property sectors," said Daniel O'Connor, National Real Estate's executive editor.

Even with the gains, the price index, which consists of commercial business district, warehouse, retail and apartment properties, is only about 91 percent of its mid-1987 level.

National Real Estate Index of Emeryville, Calif., is a transaction-based data service that reports property price and rent trends in 55 markets every quarter.

Once again, the research firm's apartment index was the biggest gainer, posting a 3.0 percent rise in the quarter. For the 12-month period, the apartment index rose 7.2 percent.

"Some local markets are experiencing truly outstanding gains," said O'Connor. "For instance, the Southeast and Southwest regions of the U.S. saw apartment prices jump an average of 7 percent in the first quarter."

Rents averaged $9.86 a square foot in the first quarter, up from $9.82 in the previous quarter, said National Real Estate, calling the rise insignificant. A year ago, rents averaged $9.59 a square foot.

The jump in apartment prices has spawned a flood of new construction, which in the first quarter was up by about a third to 38,000 units from a year earlier, the firm said. At least a few Southern markets have sufficient units in the pipeline to become oversupplied within the next 12 months, it said.

Nevertheless, apartment investors have added to their holdings in 1993. The top 10 owners of U.S. apartment complexes, sensing prices had hit bottom, increased their holdings in 1993 by 14 percent, up from an increase of 3.6 percent in 1992, according to the National Multifamily Housing Council. …