Looking at Pricing Trends Based on Property Type in the CRE Market

By Katie Borchetta · June 20, 2024

Baselines are essential for evaluating trends over time, especially when it comes to property prices and their future trajectories. Recently, Trepp provided an analytic update of its Trepp Property Price Index (TPPI), which tracks commercial real estate (CRE) price movements. This index is constructed using proprietary CRE transaction data from Trepp and its partners, utilizing a repeat sales methodology. Since 2000, Trepp has calculated 569,900 repeat sales, adding 9,192 new sale pairs in the first quarter of 2024 alone. 

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Trepp has traditionally produced composite figures for the CRE market, but has started creating specified sector figures for multifamily, industrial and other asset sectors. In the first quarter of 2024, the composite index saw a quarter-over-quarter increase of 0.51%, indicating a slight improvement in the CRE market. The year-over-year change was 0.66%. However, compared to its peak in the middle of 2022, the composite index is still 1.94% lower, showing that the market has not yet fully rebounded despite some signs of recovery in the most recent quarter.

The performance varied significantly by sector. The multifamily sector experienced a 0.51% increase quarter-over-quarter but a 2.25% decline year-over-year. The office sector saw a 1.33% increase month-over-month and a 2.37% increase year-over-year. Retail prices edged up by 0.16% month-over-month but decreased by 0.36% year-over-year. Industrial properties saw a 0.56% decline month-over-month and remained flat year-over-year. Lodging properties, however, saw a substantial 4.0% increase over the past year.

Considering the changes between the second quarter of 2022 and the first quarter of 2024, the composite index declined by 1.73%. By sector, multifamily prices fell by 5.92%, industrial by 0.98%, while lodging increased by 1.68%, office by 2.15%, and retail by 2.97%. These figures illustrate the varied performance across different CRE sectors over the past few years.

Trepp highlighted that the multifamily sector has been a significant driver behind the recent decrease in overall CRE prices. This sector saw only a slight quarterly 0.5% increase, however have noted a 2% year-over-year decline. The office sector’s performance, despite widespread predictions of decline, can be in part to illiquidity and owners’ hesitancy to sell at a lower price. This limits transaction volumes and insulates the sector from falling prices. However, the gains in the office sector are modest compared to the appreciation rates anticipated before the COVID-19 pandemic, indicating a shift in market expectations and potential long-term changes in office space valuation.

Retail has remained relatively stable, while the industrial sector, although benefiting from heavy demand, has not maintained the hype seen at the pandemic’s outset. The lodging sector is highly sensitive to consumer confidence and fluctuating travel trends. With usually less transactions than other CRE types, lodging is more susceptible to the lodging industry typically having lower transaction volumes than other types of commercial real estate, making it more susceptible to volatility. 

In summary, while the overall CRE market shows signs of recovery, significant sector-specific variations highlight the complexities and challenges within different property types. Multifamily and industrial sectors face notable struggles, whereas office, retail, and lodging sectors show varied degrees of resilience and recovery.