IRVINE and SILICON VALLEY, CALIF. — Commercial real estate valuations increased by 1.1 percent in July, marking the strongest monthly increase this year and a 5.2 gain over last year, according to the latest Ten-X Nowcast.
Ten-X, an online real estate transaction marketplace, uses Google Trends data, its own proprietary transaction data and investor surveys to forecast commercial real estate pricing trends.
“The recent string of monthly increases confirms that overall pricing of commercial real estate remains on the upswing following the weakness seen earlier this year,” says Ten-X chief economist Peter Muoio. “That said, we are noticing distinct differences across the five major property sectors, with each telling its own story.”
The office, apartment and retail sectors all saw monthly increases in July. The office sector posted the strongest gain for the second consecutive month, rising 4.8 percent from June and 7.6 percent above its level from one year ago. This was the best year-over-year gain for any of the commercial sectors since January.
The multifamily sector, which has posted steady gains this year, increased 1.1 percent in July from the previous month and is 6.8 percent above last year’s level.
“The apartment sector is unencumbered by technology-driven shifts that have impaired demand for many other property segments and has long-term demand potential represented by a myriad of social changes that are currently favoring renting,” says Muoio. “We will be watching closely to see if the sector’s consistent growth continues, but our survey results show a very positive outlook towards the segment among investors.”
The retail sector posted a modest increase in July, increasing 0.5 percent from June and rising 6.4 percent above its year-ago level. While surveys indicate bullishness towards the segment, buyers on the Ten-X platform appear to be warier, marking a shift from previous months of stronger retail pricing.
The hotel sector was flat for July following a 7.6 percent drop between November and June. Hotel fundamentals have been weakening in the face of the increasing pace of new supply, weak economies abroad, a stronger dollar and competition from AirBnB.
Meanwhile, industrial was the only segment to post a decline for the month, marking the third consecutive drop for a formerly hot property segment. The sector declined 1.2 percent from June, marking its weakest month since 2011.
“The recent weakness in industrial pricing may reflect concern about the slowdown in global trade, combined with weakness in energy-related industrial demand,” says Muoio. “So far, industrial fundamentals have been supported by demand related to e-commerce and technology, but investors may be shifting to a more cautious stance following the sharp run-up that preceded the last few months.”
The Ten-X CRE Nowcast (formerly the Auction.com CRE Nowcast) is a price index covering the entire U.S. commercial market, including individual price trends for each major market sector — office, apartments, retail, industrial and hotels.
— Haisten Willis