CCRSI RELEASE OCTOBER 2014 (With data through August 2014) COMMERCIAL PROPERTY PRICES SUSTAIN UPWARD CLIMB IN AUGUST IMPROVING LABOR MARKET CONDITIONS FUEL STRONG THIRD QUARTER NET ABSORPTION AND PRICE GAINS This month's CoStar Commercial Repeat Sale Indices (CCRSI) provide the market's first look at August 2014 commercial real estate pricing. Based on 1,279 repeat sales in August 2014 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity. CCRSI National Results Highlights STRENGTHENING FUNDAMENTALS HELPED CRE PRICES REMAIN ON UPWARD TRAJECTORY IN AUGUST. Fueled by better than expected job growth, demand continues to outstrip supply across major property types, resulting in tighter vacancy rates and continued investor interest in commercial real estate. The two broadest measures of aggregate pricing for commercial properties within the CCRSI the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index increased by 1% and 1.5%, respectively, in August 2014. IMPROVEMENT IN EQUAL-WEIGHTED U.S. COMPOSITE INDEX CONFIRMS A BROAD-BASED PRICING RECOVERY. The value-weighted U.S. Composite Index, which is heavily influenced by larger, core transactions, has now reached prerecession peak levels, and price gains have naturally slowed as a result. The Index increased 8.7% for the 12 months ending in August 2014, following 12% growth in the prior 12 months. Meanwhile, price growth in the equal-weighted U.S. Composite Index, which is influenced more by smaller non-core deals, accelerated to an annual rate of 13.6% in August 2014, up from an average of 8.7% in the prior 12 months.
DEMAND FOR CRE SPACE ACCELERATES IN THE THIRD QUARTER. During the third quarter of 2014, net absorption for the three major commercial property types office, retail, and industrial climbed to 439 million square feet for the 12- month period ending in September 2014, 11.6% higher than in the prior 12-month period. Reflecting recent price gains in lower-tier properties, the rate of net absorption in the General Commercial segment increased by more than 50% for the 12-month period ending in the third quarter of 2014, compared with a decline of 5% in net absorption in the Investment Grade segment. RECOVERY IN OFFICE SECTOR PRICES SPREADS BEYOND CBD TO SUBURBS. This month, we introduce CBD and Suburban office price indices as a new addition to the CCRSI. The CBD segment has led the price recovery in the office market as core downtown properties largely benefited from the first wave of demand and investor interest. The Office CBD Index rose to within 20.6% of its prerecession peak as of August 2014, meanwhile the Office Suburban Index is still 25.4% below its previous peak. However, momentum is building in the suburban segment. In tandem with solid demand growth over the last year, the Office Suburban Index advanced 9.2% for the twelve months ending August 2014, versus 3.2% in the Office CBD Index for the same time period. TRANSACTION VOLUME IS RISING. Composite pair volume of $52.8 1 billion through the first eight months of 2014 marked an 11.2% increase from the same period in 2013. Rising occupancies have bolstered net operating income (NOI) across a number of markets, leading to fewer forced property sales as well. Just 10.5% of all repeat sale transactions involved distressed assets in the first eight months of 2014, down from one-third of all repeat sale transactions in 2010. Monthly CCRSI Results, Data through August of 2014 1 Month 1 Quarter 1 Year Trough to Earlier Earlier Earlier Current Value Weighted U.S. Composite Index 1.0% 1.4% 8.7% 61.8% 1 Equal Weighted U.S. Composite Index 1.5% 5.2% 13.6% 30.9% 2 U.S. Investment Grade Index 1.9% 3.2% 13.7% 42.3% 3 U.S. General Commercial Index 1.5% 5.2% 13.5% 29.2% 4 1 Trough Date: January 2010 2 Trough Date: March 2011 3 Trough Date: March 2010 4 Trough Date: March 2011 1 Does not include the $4.4 billion sale of Stuyvesant Town Peter Cooper Village apartments in New York City in June2014 via deed in lieu of foreclosure.
Market Fundamentals Data through September of 2014 Annual Net Absorption (in millions of square feet) 2011Q3 2012Q3 2013Q3 2014Q3 Aggregate 305.9 253.8 393.1 439.0 Investment Grade 201.1 184.1 294.6 279.8 General Commercial 104.8 69.7 98.5 159.2 Note: "Net Absorption" is the change in occupied space, calculated based on three types of properties: office, retail and industrial. U.S. Composite Indices: Equal- and Value-Weighted, Data through August of 2014 Index Value (2000 Dec = 100) 225 200 175 150 125 100 75 50 25 U.S. Composite Value Weighted U.S. Composite Equal Weighted 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
U.S. Equal-Weighted Indices by Market Segment, Data through August of 2014 225 200 U.S. Investment Grade U.S. General Commercial Index Value (2000 Dec = 100) 175 150 125 100 75 50 25 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 U.S. Equal-Weighted Indices by CBD vs. Suburban Office Markets Data through August of 2014 200 Office CBD Office Suburban Office Index Value (2000 Dec = 100) 180 160 140 120 100 80 60 40 20 0 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Market Fundamentals, Data through September of 2014 0.7% General Commercial Net Absorption Rate Investment Grade Net Absorption Rate Net Absorption as Percent of Stock 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 0.1% 0.2% 0.3% Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 U.S. Pair Count, Data through August of 2014 U.S. Pair Volume, Data through August of 2014 2,500 U.S. General Commercial Pair Count U.S. Investment Grade Pair Count $14 U.S. General Commercial Pair Volume U.S. Investment Grade Pair Volume 2,000 1,500 1,000 500 0 2003 2004 2005 2006 2007 2008 2009 2010 Number of Sale Pairs 2011 2012 2013 2014 Billions of Dollars $12 $10 $8 $6 $4 $2 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
U.S. Distress Sale Pairs Percentage, Data through August of 2014 U.S. Investment Grade Distress Pair % U.S. General Commercial Distress Pair % Distressed Sale Pairs as Percentage of Total 40% 35% 30% 25% 20% 15% 10% 5% 0% Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 About the CoStar Commercial Repeat-Sale Indices The CoStar Commercial Repeat-Sale Indices (CCRSI) is the most comprehensive and accurate measure of commercial real estate prices in the United States. In addition to the national Composite Index (presented in both equal-weighted and value-weighted versions), national Investment Grade Index and national General Commercial Index, which we report monthly, we report quarterly on 30 sub-indices in the CoStar index family. The sub-indices include breakdowns by property sector (office, industrial, retail, multifamily, hospitality and land), by region of the country (Northeast, South, Midwest, West), by transaction size and quality (general commercial, investment grade), and by market size (composite index of the prime market areas in the country). The CoStar indices are constructed using a repeat sales methodology, widely considered the most accurate measure of price changes for real estate. This methodology measures the movement in the prices of commercial properties by collecting data on actual transaction prices. When a property is sold more than one time, a sales pair is created. The prices from the first and second sales are then used to calculate price movement for the property. The aggregated price changes from all of the sales pairs are used to create a price index.
National Composite CRE Price Index National Indices by Property Type Regional Indices All Properties Office Northeast General Commercial Investment Grade Industrial Multifamily Hospitality Land Midwest South West Regional Indices by Property Type Northeast: Office, Multifamily, Industrial, Midwest: Office, Multifamily, Industrial, South: Office, Multifamily, Industrial, West: Office, Multifamily, Industrial, Prime Market Indices by Property Type Office Multifamily Industrial Prime Office Markets CBSA Listed Alphabetically Boston Los Angeles New York Orange County San Francisco Seattle Washington DC Prime Markets CBSA Listed Alphabetically Boston Los Angeles Prime Industrial Markets CBSA Listed Alphabetically Atlanta Chicago Dallas Houston Los Angeles Northern New Jersey Riverside Seattle Prime Multifamily Markets CBSA Listed Alphabetically Boston Chicago
New York Orange County San Diego San Francisco San Jose Washington DC Houston Los Angeles New York Orange County San Francisco San Jose Seattle Washington DC CONTACT: Mark A. Klionsky, Senior Vice President-Marketing (mklionsky@costargroup.com). For more information about the CCRSI Indices, including the full accompanying data set and research methodology, please visit http://costargroup.com/costar-news/ccrsi. ABOUT COSTAR GROUP, INC. CoStar Group (Nasdaq:CSGP) is the leading provider of commercial real estate information, analytics and online marketplaces. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. Through LoopNet, the Company operates the most heavily trafficked commercial real estate marketplace online with more than 8.7 million registered members. Apartments.com is a premier online apartment resource for renters that matches apartment seekers with great apartment homes and provides property managers and owners a proven platform for marketing their properties. CoStar operates websites that have approximately 16 million unique monthly visitors in aggregate. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S., Canada and Europe with a staff of over 2,300 worldwide, including the industry's largest professional research organization. For more information, visit www.costargroup.com. This news release includes "forward-looking statements" including, without limitation, statements regarding CoStar's expectations, beliefs, intentions or strategies regarding the future. These statements are based upon current beliefs and are subject to many risks and uncertainties that could cause actual results to differ materially from these statements. The
following factors, among others, could cause or contribute to such differences: the risk that the trends represented or implied by the indices will not continue or produce the results suggested by such trends; the risk that investor demand and commercial real estate pricing levels will not continue at the levels or with the trends indicated in this release; and the risk that historical results will not be indicative of future performance. More information about potential factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to, those stated in CoStar's filings from time to time with the Securities and Exchange Commission, including in CoStar's Annual Report on Form 10-K for the year ended December 31, 2013, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, each of which is filed with the SEC, including in the "Risk Factors" section of those filings, as well as the company's other filings with the SEC available at the SEC's website (www.sec.gov). All forward-looking statements are based on information available to CoStar on the date hereof, and CoStar assumes no obligation to update such statements, whether as a result of new information, future events or otherwise.