Led by CEO Andrew Florance, CoStar says its indices show continued investor interest outside the core.

WASHINGTON, DC—They may not grab headlines with as much ferocity as trophy assets, but investment sales outside the core markets are leading the way in some key metrics. That’s one of the conclusions to be taken from this month’s CoStar Commercial Repeat Sale Indices, released Wednesday.

Specifically, Washington, DC-based CoStar says that within its equal-weighted US Composite Index, the “general commercial” segment, comprised mainly of smaller deals typically found in secondary and tertiary markets, made its strongest annual pricing gain since the recovery began. It increased by 17.2% over the 12 months that ended March 31, a gain that CoStar attributes to continued investor interest in non-prime markets. During the same time period, the “investment grade” segment increased by 14.9%.

Further, CoStar says that the equal-weighted index, which represents lower-value properties, has seen greater momentum in early 2014, with pricing up 4.2% for the first quarter and 17.1% year-over-year. The value-weighted composite index, which leans more toward larger, higher-value properties, has already recovered to within 5% of its prior peak levels, and therefore, pricing gains in that index advanced by a more modest 0.5% in Q1 and 10.1% year-over-year.

Q1 also saw investment volume rise 33% to $16 billion over the total for the same period a year earlier. Long-term, CoStar says, the results from Q1—generally the slowest quarter of the year for investment sales—indicate that capital flows should be strong this year. Furthermore, the percentage of commercial property selling at distressed prices has also fallen by more than two-thirds from the peak levels reached in 2011, to just 10% of all composite pair trades in Q1 of this year.

On a regional basis, the West fared best in terms of annual gains, increasing 13.6% over the past 12 months. Within that region, pricing for multifamily properties has increased to within 4% of the previous peak, while the office, retail and industrial indices in the West each posted double-digit gains over a year ago.

“Robust investor demand for core industrial markets has made the West Industrial Index a standout, leading all the regional property type indices with 17.4% annual growth for the same 12-month period,” according to CoStar. Slowest to recover among the four regions has been the Midwest.

On a sector-by-sector basis, retail has been the strongest performer, says CoStar. Partly it’s due to strengthening fundamentals: in both office and retail, vacancies have fallen to within 100 basis points of pre-recession levels.

CoStar’s retail index is up 25% from its recessionary low and 14.9% for the 12 months ended in the first quarter of 2014, for the strongest annual gain among the major property sectors, although all but multifamily posted gains. However, CoStar says, “even with the recent jump, retail pricing is still at 2005 levels, suggesting there may be further runway in the recovery for this property type.”

Echoing the theme sounded by the composite indices, the overall retail market outperformed the Prime Retail Metros Index over the past year. The lesson to be taken from this, according to CoStar: “investors are branching out beyond well-leased malls and infill retail in the primary markets. With the supply of available retail properties low across the board, markets with outsized demographic and economic growth, such as Austin, Charlotte and Denver, have posted above-average pricing gains” over the past 12 months.