Commercial property prices skyrocket in big cities

The average price for a commercial property sold in mid-2000 reached a record $22 million, an indication that investors remain bullish toward future returns on trophy properties, according to a release from the Certified Commercial Investment Member Institute and Landauer Realty.

The CCIM/Landauer Investment Trends Quarterly also reported that 4.8 percent of properties sold were at prices exceeding $100 million, while 5.9 percent fell into the $50 million to $100 million range.

Since the Investment Trends Quarterly report was first published in 1995, the average price per deal has only exceeded $20 million one other time, in late 1998.

Big cities, most notably New York, Boston, Washington, Los Angeles and San Francisco were the focus of investor attention.

Nevertheless, trophy properties also were transacted in small markets, such as Portland, Ore., and Denver.

"The record-level average for commercial properties sold does not mean the small investor has been locked out of the market," said CCIM Institute President Darbin T. Skeans, CCIM.

"More than 43 percent of the deals closed were for properties of $5 million or less. One of the more salient characteristics of the commercial real estate market in its mature recovery has been its breadth across the spectrum of investor classes," Skeans said.

From a regional perspective, the Mid-Atlantic states (New York, Pennsylvania, New Jersey, Delaware, Maryland and the District of Columbia) continued to attract the most investment dollars, capturing 30 percent of the reported national dollar volume.

"From 1995 to 1996, the Southeast wore the laurels in investment volume, and from 1997 through 1999, the Pacific region consistently led the pack in aggregate sales price," said Hugh F. Kelly, chief economist for Landauer Realty.

"It now appears that the corridor from New York City to Washington, D.C., is the focus of the most intense commercial real estate capital commitments," he said.

Once again, the office sector led all property types in terms of dollars invested. In mid-2000, the sector captured 57 percent of total investment dollars and 26.6 percent of the number of deals.

Per-square-foot prices for office properties sold during the period soared to a record $185.

Other highlights from CCIM/Landauer include:

The multifamily sector posted a strong showing, especially in the high-growth Pacific, Mountain and Southeast states, with more than 12 percent of dollars invested, second only to the office market. The average price paid per unit was $67,385, and cap rates were aggressive with a mean value of 8.9 percent and a median of 8.8 percent.

Investment in retail properties remained relatively stagnant despite an increase of 6.7 percent in inflation-adjusted dollars in sales for the 12-month period ending June of 2000. Reasons for this stagnation include a lack of available product, the bullish office market and concerns over the ultimate direction of the "clicks and mortar" phenomenon of online shopping

Capital flowed from an unusually large number of sources. Developers, international investors, pension funds, private investors and limited partnerships combined contributed more than 50 percent of all dollars spent on commercial real estate during the period.

The CCIM/Landauer Investment Trends Quarterly represents a broad-based sampling of second quarter 2000 transactions with a total value of $10.4 billion, the majority of which were reported by CCIM designees. Since the survey was initiated in 1995, more than 8,700 transactions valued at $114.4 billion have been analyzed.