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Commercial Real Estate Price Index in Commercial Real Estate
In commercial real estate, price indices are designed to show the current strength of the commercial real estate market across the United States.
What Are Commercial Real Estate Price Indices?
In commercial real estate, price indices are designed to show the current strength of the commercial real estate market across the United States. In general, most indices are not international, as CRE markets are substantially different in foreign countries, and combining the data would not likely to an accurate and informative result. Some of the most well-known commercial real estate price indexes include:
SIOR Commercial Real Estate Index (CREI): Compiled by the Society of Office and Industrial Realtors (SIOR), the SIOR CREI is adjusted quarterly, based on surveys of local market experts across the United States. The CREI ranges from 0 to 200, with 0 indicating extremely weak prices, while 200 indicating incredibly high prices. Well-balanced real estate markets generally fall at around 100 on the scale.
CoStar Commercial Repeat Sale Indices (CCRSI): A group of indices compiled by CoStar, one of the largest CRE software and data companies in the world, and the owner of LoopNet, the largest commercial MLS in the country.
Commercial Property Price Index (CPPI): Compiled by Green Street Advisors, one of the best known real estate research and advisory firms in the United States, the CPPI is based on commercial property appraisal prices across the country.
The US Commercial Real Estate Index (CREI): Created in 2014, the US CREI is one of the most regularly updated CRE price indexes on the market today. It was created by CRE Demographics, LLC, and examines eight economic drivers in order to determine relative market strength.
RCA CPPI: Originally branded as the Moody’s/Real CPPI indices, the Real Capital Analytics (RCA) Commercial Property Price Indices currently consist of 10 free national indices, published on a monthly basis, and multiple other indices, published quarterly.
What is the current commercial real estate price index?
The current commercial real estate price index depends on the index you are looking at. According to the SIOR Commercial Real Estate Index (CREI), the current index is at 100, which indicates a well-balanced real estate market. The CoStar Commercial Repeat Sale Indices (CCRSI) is currently at 100.3, while the Commercial Property Price Index (CPPI) is at 100.2. The US Commercial Real Estate Index (CREI) is currently at 100.1, and the RCA CPPI is at 100.4.
How does the commercial real estate price index affect financing?
The commercial real estate price index can provide valuable insight into the direction of the market, which can be used to inform financing decisions. For example, if property appreciation is the goal, investors may be hesitant to buy if commercial real estate prices have gone up for the last 3-4 years straight, as they could decline soon. However, individual property value and local market factors are also essential, so overall CRE prices are simply one piece of data that investors and developers can utilize to gain a balanced perspective before making a business decision. Source
What factors influence the commercial real estate price index?
The most important factor that influences the commercial real estate price index is location. Location can have a significant impact on the value of a property for certain buyers, such as business owners who want to use the property for their business. Other factors that can influence the commercial real estate price index include local market factors, property appreciation, and individual property value.
How can investors use the commercial real estate price index to their advantage?
Investors can use commercial real estate price indices to gain insight into where the market may be headed. For example, if property appreciation is the goal, investors may be hesitant to buy if commercial real estate prices have gone up for the last 3-4 years straight, as they could decline soon. Additionally, investors can use the data from the various commercial real estate price indices to gain a balanced perspective before making a business decision. Some of the most well-known commercial real estate price indexes include:
- SIOR Commercial Real Estate Index (CREI): Compiled by the Society of Office and Industrial Realtors (SIOR), the SIOR CREI is adjusted quarterly, based on surveys of local market experts across the United States. The CREI ranges from 0 to 200, with 0 indicating extremely weak prices, while 200 indicating incredibly high prices. Well-balanced real estate markets generally fall at around 100 on the scale.
- CoStar Commercial Repeat Sale Indices (CCRSI): A group of indices compiled by CoStar, one of the largest CRE software and data companies in the world, and the owner of LoopNet, the largest commercial MLS in the country.
- Commercial Property Price Index (CPPI): Compiled by Green Street Advisors, one of the best known real estate research and advisory firms in the United States, the CPPI is based on commercial property appraisal prices across the country.
- The US Commercial Real Estate Index (CREI): Created in 2014, the US CREI is one of the most regularly updated CRE price indexes on the market today. It was created by CRE Demographics, LLC, and examines eight economic drivers in order to determine relative market strength.
- RCA CPPI: Originally branded as the Moody’s/Real CPPI indices, the Real Capital Analytics (RCA) Commercial Property Price Indices currently consist of 10 free national indices, published on a monthly basis, and multiple other indices, published quarterly.
What are the benefits of investing in commercial real estate based on the price index?
Investing in commercial real estate based on the price index can provide valuable insight into where the market may be headed. It can help investors make informed decisions, such as whether to buy or sell, and when to do so. Additionally, commercial real estate offers a variety of tax benefits, such as accelerated depreciation, mortgage interest deductions, and tax advantages for an investor’s heirs. These benefits can lead to a massive difference in returns, especially over an extended period of time.
How Commercial Property Investors Can Utilized Price Indices to Make Informed Decisions
As a commercial investor, you may not be able to predict the market using a commercial real estate price index, but you can certainly get some valuable insight into where it may be headed. Like other types of investors, many of the smartest commercial real estate investors attempt to “buy low and sell high.” For example, if property appreciation is your goal, you may be hesitant to buy if commercial real estate prices have gone up for the last 3-4 years straight, as they could decline soon. However, individual property value is essential; and so are local market factors. This means that overall CRE prices are simply one piece of data that investors and developers can utilize to gain a balanced perspective before making a business decision.