CoStar Group: Investors still in love with U.S. commercial real estate

costarby Dan Rafter

Falling unemployment and low interest rates meant good news for the owners of commercial real estate properties in the third quarter of 2015, according to the lastest numbers from CoStar Group.

In its latest report, CoStar reported that these two factors played a key role in boosting the value of commercial real estate properties in the third quarter.

But a more interesting factor helped, too: Uncertainty across the globe.

According to CoStar the shaky economic conditions throughout the rest of the world continues to send investment dollars into U.S. commercial real estate. That’s because investors are looking for save places to stow their money. U.S. real estate remains among the most stable of investment vehicles today.

CoStar’s equal-weighte U.S Composite Index — one of the broadest measures of pricing within the company’s recently released CoStar Commercial Repeat Sale Indices — jumped by 2.6 percent in the third quarter. This means that the value of U.S. commercial properties continued to increase during the quarter.

For the 12 months ended in September of this year, this popular measure of commercial property value increased 11.2 percent.

To no one’s surprise, CoStar pointed to multifamily as a top performer in the commercial sector. The Multifamily Index increased 3 percent in the third quarter and 12.4 percent for the 12 months that ended in September. This index is now 15 percent higher than its prior peak, a rather impressive accomplishment. And, yes, this is all happening despite already-elevated multifamily pricing and heavy construction in this sector.

CoStar reported, too, that the hospitality sector had a strong third quarter. The company’s Hospitality Index rose 13 percent during the 12 months that ended in September. This helped the Hospitality Index move within 11 percent of its previous high. That’s pretty impressive, too, when you consider how far the hospitality business tumbled during the days of the Great Recession.

Investors, of course, have taken note of how strong the U.S. commercial real estate market is. CoStar reported a composite commercial sales volume of nearly $91 billion in the first three quarters of 2015. That number grew 32.8 percent when compared to the first three quarters of 2014. It also put 2015 on a record-setting pace for transaction volume in the CoStar Commercial Repeat Sale Indices.

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