Understanding Commercial Real Estate Indices

Abstract

This paper examines five indices in the commercial real estate (CRE) markets: the National Association of Real Estate Investment Trusts (NAREIT) Index, the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index (NPI), the Transaction Based Index (TBI), Moody’s/Real Commercial Property Price Indices (CPPI), and CoStar Commercial Repeat-Sale Indices (CCRSI). We find much heterogeneity in the information content of these indices. NAREIT, NPI, and TBI may not be appropriate measures of current CRE market conditions in general, even though these indices, and especially the first two, are commonly used. We find substantial information differences between CPPI (an index driven by high-value CRE properties) and CCRSI (an index driven by low-value CRE properties) and the difference in information content is notable. This finding indicates that high- and low-value CRE markets are not closely linked. As most CRE indices are driven by high-value CRE markets, our findings suggest that most of these indices may not be very useful to non-institutional CRE investors, local banks who are the main lenders of such loans, or investors in CMBS where the underlying assets include low-value CREs. Finally, based on either CCRSI or CCPI, we conclude that CRE markets are local.