Green Street

Commercial Property Price Index®

Pan-European Commercial Property Price Index

April 12, 2023

Déjà Vu

London, 12 April 2023 – The Green Street Commercial Property Price Index decreased by 6.7% during the first quarter of 2023. The index, which measures a broad swathe of Pan-European commercial properties, now sits 21% below its May '22 peak. The residential sector bore the brunt of the pain this quarter with a 10.4% price decline, although metros with above-average starting yields and limited rental regulation went relatively unscathed. Office investors returned to their post-Covid form as bids fell 9.5% amidst an uncertain economic and financing backdrop. Industrial and retail asset prices fared a bit better, falling only 4.8% and 2.0%, respectively. Resilient fundamentals buoyed the former whilst high cap rates dressed up the latter.

“The first quarter of 2023 failed to quell many of the anxieties that plagued markets last year,” said Peter Papadakos. “In fact, some might say that it has only introduced new ones. A regional banking crisis in the U.S. teleported to Europe shortly thereafter, raising newfound fears over the stability of our financial system and the future of lending standards. Higher interest rates are proving to be an enigmatic challenge for all corners of the economy, and commercial real estate is no exception. Many investors have opted for a ‘wait-and-see’ approach to capital allocation, which has resulted in persistent bid-ask spreads and another leg down in property prices. Pockets of optimism do, of course, exist within a curated selection of sectors and markets. Positive embedded reversion potential, a reliable tenant roster, and the ability to capture inflation-sized indexation rent bumps are a few attributes in particularly high demand. Said differently, cash flow is king once again.”

Take a look at our U.S. Commercial Property Price Index

How is our index different than others that track commercial property prices?

How is our index different than others that track commercial property prices?

Timeliness

Green Street's Commercial Property Price Index® is a time series of unleveraged U.S. commercial property values that captures the prices at which commercial real estate transactions are currently being negotiated and contracted. Features that differentiate this index are its timeliness, its emphasis on high-quality properties, and its ability to capture changes in the aggregate value of the commercial property sector. Learn more.

Green Street's Commercial Property Price Index is a time series of unleveraged Pan-European commercial property values that captures the prices at which commercial real estate transactions are currently being negotiated and contracted. Features that differentiate this index are its timeliness, its emphasis on average institutional quality properties, and its ability to capture changes in the aggregate value of the commercial property sector.

Green Street Commercial Property Price Index®

Green Street Commercial Property Price Index

Indexed to 100 in August 2007

Indexed to 100 in September 2007

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Core Sector Average is equally-weighted between the Industrial, Office, Residential, and Retail sectors.

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Change in Commercial Property Values

Amount property values have increased over this period

April 12, 2023



What makes our Commercial Property Price Index® unique?

There are significant differences between the Green Street CPPI® and other indices that track commercial property prices. Green Street's CPPI® is appraisal-based. Appraisal-based indices are only as good as the valuation estimates used to construct them, and Green Street has long devoted sizable resources to deriving accurate estimates of the values of the properties owned by REITs. Most other indices are transaction-based.

Green Street's Pan-European Real Estate Analytics platform covers 25 of the most liquid European real estate markets across the industrial, office, retail, and residential property sectors. The Commercial Property Price Index is a time series of unleveraged property values across these sectors and markets, and captures the prices at which commercial real estate transactions are currently being negotiated and contracted. Features that differentiate this index are its timeliness, its emphasis on average institutional quality properties, and its ability to capture changes in the aggregate value of the commercial property sector.

Institutional Quality

Institutional Quality

Average Institutional Quality

The index is based on Green Street's frequently updated estimates of price appreciation of the property portfolios owned by the REITs in its U.S. coverage universe. Since REITs own high-quality properties, the index measures the value of institutional-quality commercial real estate.

The index is based on Green Street's frequently updated estimates of price for the property portfolios of a typical commercial real estate investor. It is driven by the fundamental models maintained by the research team, which, in turn, are driven primarily by changes in market cap rates and net rental income.

Timely

Timely

Timeliness

Our index reflects changes in commercial property values as soon as we hear about them. That's one of the benefits of an appraisal-based index; we don't have to wait for deals to close. Most other indices are based on closed transactions, so they convey information several months old.

The Green Street index value is based on where commercial real estate would transact today. Other indexes, based on either closed transactions or formal appraisals, may reflect market prices from many months earlier.

Value-Weighted

Value-Weighted

Asset Value Weighted

We place more weight on high-quality properties, e.g. a New York skyscraper has a much greater impact than a suburban strip mall. Because our CPPI® is value-weighted, it measures what’s happening to real estate prices in aggregate, similar to the Wilshire 5000 that measures what’s happening to the stock market in aggregate. Most property indices are equally-weighted.

Each sector index is created by GDP weighting individual market indexes. The sector indexes are then equal weighted to create the Pan-European Commercial Property Index. Akin to familiar stock price indexes (e.g., S&P 500), GDP value weighting provides a gauge of aggregate (as opposed to average) values. Equal-weighted indexes, by contrast, put the same emphasis on a Dusseldorf industrial building as they do a trophy London office building.