CoStar Group headquarters in Washington, DC. (Photo: CoStar)

WASHINGTON, DC—Pre-recession highs in commercial real estate pricing had some shade thrown on them in September, CoStar Group said Friday. The equal-weighted US Composite Index, one of the two national composite CoStar Commercial Repeat Sale Indices reflecting 1,222 repeat sales, moved 0.8% above its previous August 2007 peak in September, marking the first time this index has surpassed that high watermark. Meanwhile, the value-weighted US Composite Index is now 26.4% above its peak from the previous cycle.

Both of the CCRSI national composite indices rose 2.9% in the third quarter, according to CoStar. Furthermore, all four property sectors tracked by CoStar saw pricing gains in Q3. However, deal volume has continued to taper off, with the $90.7 billion of repeat sales in the first three quarters of 2016 representing a 1.5% decline from the year-ago period.

On a regional basis, the South and West indices easily outpaced those of the Northeast and Midwest, with composite quarterly growth of 2.1% and 2.2%, respectively. Q3 saw the Northeast composite increase just 0.5%, pulled down by the multifamily and industrial indices, while the Midwest composite declined 2.1% during the quarter and grew just 1% over the preceding 12 months. By contrast, the South and West indices each grew by 6.5% year over year.

By sector, apartments led the way, with the US Multifamily Index growing 2.2% in Q3 and 7.7% Y-O-Y. The sector is now 25% higher than in '07; yet CoStar notes that the Prime Multifamily Metros Index receded 2.4% in Q3, its first decline since 2010 and suggesting a maturing cycle for the priciest of assets and markets. However, this index is still 45% above its previous '07 high.

The US Office Index increased 1.6% during Q3 and 6.5% in the 12-month period that ended Sept. 30, thanks to continuing improvement in office rent growth and occupancy rates. Similar to the trend seen in multifamily, pricing growth was slower at the top end of the office market as well during Q3, with the Prime Office Metros Index up by just 0.6% for the quarter. CoStar says this may reflect a slowdown in net absorption in the tech-driven prime office markets of San Francisco and San Jose during this time period.

Q3 also saw US industrial posting its second-strongest quarter of net absorption on record, helping to push vacancies lower than at any time in the past two cycles. Accordingly, CoStar's US Industrial index advanced 1.8% in Q3 and 5.5% in the 12-month period ending in September. Core industrial markets remained in favor among investors as the Prime Industrial Metros Index advanced by 2.6% in the Q3 and 9.2% Y-O-Y.

Less successful among the four sectors was retail, where the broad national index rose just 0.1% in Q3 and 4.1% from the year-ago period. Here again, CoStar sees the slowdown in overall pricing growth as attributable to a flattening in prices at the top end of the market. The Prime Retail Metros Index had advanced 20% above its prior peak level in during Q2, but dipped 1.9% in Q3, reflecting a slowdown in price growth among the most expensive properties and metros that previously had led the recovery.