MSCI’s RCA Commercial Property Price Indexes (RCA CPPI) have revealed that prices across all major U.S. property types declined. This marks the first time since September 2010 that every category experienced simultaneous price drops, both on a month-over-month and year-over-year basis.
The overall property index fell by 1.1% between March and April and was down 9.4% compared to April 2022.
By property type, industrial prices slipped by 0.5% month-over-month and 0.8% year-over-year. The multifamily index dropped 1.5% from March to April and 12.1% over the past year.
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Retail property prices declined 6% year-over-year, representing the largest annual decrease for this category since the end of 2010. In April 2024, retail had actually shown an annual increase of more than 18%. Meanwhile, office property prices fell by 6.9% compared to April 2022, indicating a sharper rate of decline.
To better understand these year-over-year price changes, it helps to consider concepts from calculus, such as the distinction between the first and second derivatives. Prices can continue rising, which reflects a positive first derivative, even if the rate of increase—the second is negative. Eventually, the year-over-year change may slow to zero, or could even turn negative, following current trends. As Chad Littell, CoStar’s national director of U.S. capital markets, explained to GlobeSt.com in February, the second derivative is a key indicator of conditions in commercial real estate.
This dynamic played out in April, as the second derivative has fallen sharply since property prices peaked in 2022. The current slide resembles the patterns seen during the 2008 Great Recession, though this time, year-over-year price changes are dropping from a higher starting point.
The distinction between the two rates of change can be confusing. The idea that prices could fall may have come as a surprise, but the downward movement in the rate of change signaled what was likely to come. By 2024, the pace of falling values appeared to be slowing.
Reflecting on this, Littell noted that the second quarter of last year was when the second derivative began to bottom out, suggesting the potential for a market bottom. MSCI also pointed out that the monthly rate of decline for multifamily properties slowed from 2% to 1.5%. However, a single month does not establish a trend, and this could change in May or later. All rates of decline could shift, or they might remain steady, making it a good time to pause and reconsider immediate strategies.
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