Commercial property sales activity in February and March declined 17% as the financial fallout from the coronavirus pandemic hit real estate markets.

This month’s CoStar Commercial Repeat Sale Indices provide a first look at commercial real estate pricing trends through March. Based on 831 repeat sale pairs in March and more than 225,707 repeat sales since 1996, the indices offer the broadest measure of commercial real estate repeat sales activity.

When a property is sold more than once, the price change from the pair of first and second sales are used to calculate price movement, and those sales pairs are used to create a price index.

CoStar’s value-weighted U.S. Composite Price Index, which reflects the larger asset sales common in core markets, increased 2% over the wider first quarter and 5.9% in the 12 months ended in March.

The equal-weighted U.S. Composite Index, which reflects the more numerous but lower-priced property sales typical of secondary and tertiary markets, advanced 4.6% in the first quarter and 6.5% in the past 12 months.

The first-quarter data lags somewhat, as deals reported in the weeks after the quarter’s end are still being tallied. That said, however, the number of trades and corresponding sales volume in February and March were pacing below previous monthly averages as investors hit the pause button in the current uncertain environment.

“Modest price growth in the first quarter, as measured by the CCRSI, largely reflected the environment in the first two months of the year, before widespread lockdowns and social distancing measures began to have a significant impact on the economy and CRE space markets,” said Nancy Muscatello, managing consultant for CoStar. “The impact of COVID-19 was most evident in a slowdown in deal volume in February and March.”

While January trading activity appears largely stable, the 1,993 repeat-sale trades recorded so far in February and March were 17% lower than in the same two months in 2019. This was probably because investors held back as the economic environment became more tenuous, Muscatello said.

Similarly, repeat-sale transaction volume also began to drop from recent historical average levels in February and March. Composite pair volume of $16.8 billion in February and March was down 15% from the same two months in 2019.

The eventual impact of the pandemic and economic fallout on commercial real estate market fundamentals and pricing is currently unclear. While lockdowns and social-distancing measures became the norm late into the first quarter, the full impact of the pandemic on property pricing has yet to unfold.

The major property type indices posted average price growth of 1.7% in the first quarter and 4.7% in the 12-month period ending in March.

The U.S. Multifamily Index led growth among the four major property types. It expanded 2% in the first quarter, contributing to an annual gain of 9.8%, maintaining its position as one of the strongest property-type indices over the past cycle.

Solid gains persisted in the U.S. Industrial Index. Prior to the COVID-19 outbreak, industrial fundamentals remained on solid footing, with vacancies hovering just above 5%, driving sustained above-trend rent growth in the first quarter. Pricing increased, with the industrial index up 1.8% in the first quarter and 3.1% in the 12 months.

Office prices continued their pace of modest growth. The U.S. Office Index increased 0.8% in the first quarter, which was on par with the average quarterly gain over the previous four quarters. Over the past year, office prices were up 3.4% in the 12-month period.

Price growth was slowest in the retail sector in the first quarter as headwinds from e-commerce competition were already a factor prior to the pandemic. The U.S. Retail Index rose 2.2% in the first quarter but amounted to an annual gain of just 2.7%.

Good quality, well-located retail property commanded investor interest and pricing growth, while pricing regressed in centers with elevated vacancy rates and poor location characteristics.

While hospitality sector fundamentals have suffered significantly during the COVID-19 pandemic, pricing in the first quarter had yet to reflect these conditions. The U.S. Hospitality Index was up 4.1% in the first quarter, contributing to annual gains of 9%.

The U.S. Land Index is currently the most volatile of the property type indices. After falling throughout most of 2018 and early 2019, the index rebounded over the past several quarters and ended the 12 months up 17.4% on the strength of continued demand for development sites.