CRE Prices Are Getting Closer to Pre-Covid Levels

Commercial property prices continue to inch up.

In November, The Green Street Commercial Property Price Index increased by 1.8%. 

Right now, the property index is 8% below pre-pandemic levels. It is 8.2% below November 2019 levels.

Green Street said the price increases were widespread, with only the “more challenged” sectors not participating. Apartments and industrial have increased by 2% in the last month. Apartments are down 5% from before Covid-19, while industrial has risen 8%. 

The most significant increases in the past month came in student housing, which is up 6%, and manufactured homes and self-storage, which are up 5%. Since Covid began, self-storage has had no change, while student housing is down 6% and manufactured housing prices have increased by 8%. Net lease pricing has decreased by 8% from pre-Covid.

Mall, lodging, net lease and office pricing didn’t change in the last month. Since Covid began, lodging pricing is down 25%, mall pricing is down 20% and office pricing is down 9%. Strip retail and health care pricing increased 2% and 3%, respectively. Since the pandemic began, strip retail is down 13% and health care is down 4%.

“Property pricing has firmed up over the past few months,” said Peter Rothemund, managing director at Green Street, in a statement. “In several sectors, it’s above, or close to, pre-Covid levels and only the harder-hit property types remain down 10% or more. With interest rates this low—and a vaccine coming—that’s not surprising. Cap rates that are, on average, in the 5% range look very attractive when BBB-rated corporate bonds yield around 2%, or perhaps 3% if one really stretches on term.”

Green Street’s findings reflect other indicators of a price recovery. Last month Real Capital Analytics reported its US National All-Property Index rose 3.6% from a year ago.

RCA found that the pricing in the hard-hit retail and hospitality sectors continued to slide, with retail falling 5.2% from a year prior.

One factor affecting pricing has been a wide bid-ask gap between buyers and sellers. In October, a survey from CBRE found that 61% of buyers expected a discount from pre-pandemic prices, but only 9% of sellers were willing to offer a discount. 

However, that gap appears to be closing. Pricing has gotten a bit more certain than it was at the start of the pandemic and the bid-ask spread between buyer and seller has narrowed, Andrés Dallal, executive director, Investments, W.P. Carey recently told GlobeSt.com. 

Dallal does add some caveats. The credits must be good and the real estate well located. For companies that don’t have a sustainable path forward or are located in tertiary markets, there is still a divide, he says.

“There has definitely been a flight to quality in this market,” Dallal says.