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RCA Property Price Indices: Rising Before the Fall, and a Great Recession Reminder

[Updated: Aug 26, 2020 ] Apr 27, 2020 by Marc Rapport
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Led by apartment real estate, commercial property prices grew in March, according to Real Capital Analytics (RCA), although the firm cautioned that the effects of the coronavirus pandemic had not yet shown up in its Real Capital Analytics Commercial Property Price Indices (RCA CPPI).

The company said its U.S. National All-Property Index rose 7.2% from March 2019 to March 2020, including 0.7% from February to March this year.

By sector, apartment prices posted an 11.0% increase year over year and 1.0% this past March alone. Industrial prices were up 8.9% year over year and 0.6% this past March after showing the fastest growth by sector for more than a year.

Retail prices have lagged for the past few years, RCA said. They moved up 0.3% in March but were up only 2.8% year over year. Office property prices were up 0.7% for the month and 5.7% compared to March 2019.

New York City-based RCA noted that the March pricing data was pre-pandemic. "Price discovery will emerge as sellers adjust their expectations to those of buyers amid the economic and financial upheaval," the report said. That discovery is how deals get done.

Then came the pandemic

The economy-crushing COVID-19 pandemic has already cast a pall on residential and commercial real estate activity going forward, in everything from remodeling to architectural billings.

Another RCA report, U.S. Capital Trends, showed U.S. commercial real estate transaction volume also posting a first-quarter increase, this one 11% over Q1 2019, before beginning to collapse in March.

"In March, deal activity for each property type dropped at a double-digit rate as the financial and economic implications of the COVID-19 pandemic started to unfold," the commercial real estate analytics firm said in a post on Wednesday, April 22.

Past as prologue?

RCA said its reports draw on records of more than $18 trillion in commercial property transactions linked to more than 200,000 investor and lender profiles.

The RCA CPPI, meanwhile, is based on repeat-sales transactions through the previous month and estimates through that month's date of production. Each index is benchmarked to 100 at December 2006, according to RCA.

That's two years before the Great Recession, or as RCA calls that downturn in its reports, the Global Financial Crisis (GFC). The data firm said that while it can't say how long the coronavirus crisis will last in the commercial property realm, "we can look back on how markets fared across the U.S. during the last recession."

Some areas still at pre-recession levels

The U.S. National All-Property Index this month includes data showing how many months it took dozens of markets to return to their pre-recession peaks before the GFC. The quickest recovery was 17 months for apartment prices in Portland and 27 months for commercial real estate in San Jose and some sectors in Los Angeles.

The longest was 92 months for apartments in Tampa and 102 for Atlanta commercial prices. There also are markets still below those levels, including Chicago; metro Washington, D.C.; Jacksonville; Las Vegas; Phoenix; Orlando; and Palm Beach County.

That means, at least by this measure, that they still haven't completely recovered from one recession before another has arrived.

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