Outside of the hotel sector, the other four major sectors continued seeing year-over-year price growth stabilization between 10% and 20%. Hotel pricing skyrocketed 30.4% from one year ago. Hotel sector prices contracted on a year-over-year basis in Q2 and Q3 of 2014, but bounced back moderately in Q4 that year before exploding in the first, second and third quarters of 2015. Office (18.6%), retail (13.7%), apartment (13.2%) and industrial (11.2%) all are up from one year prior.
Hotel pricing hit an all-time peak with retail being the only remaining sector yet to make its way back to pre-recession peak pricing. Retail prices in Q3 were still 4.4% short of their pre-downturn peak, while apartment (33.5%), office (17.9%) and industrial (3.1%) pricing were higher than their prior all-time peaks.
Year-over-year hotel price growth decelerated slightly in Q3 from Q2, but still remained strong since operating conditions, including room demand, average daily room rates, RevPAR, and occupancy rates continued to hover at or near their all-time peaks, and the supply pipeline has been ramping up considerably.
"Both CRE transaction volume and pricing have showed signs of softening over the past few months," said Rick Sharga, Auction.com executive vice president. "It's likely that what we're seeing is the result of reduced capital spending due to some weakness in the U.S. economy, coupled with a highly volatile economic climate in China and ongoing financial issues in Europe."
Risk Premiums Increased in Q3
Auction.com's research calculates that CRE risk premiums increased in Q3 from Q2 across every CRE sector except apartment, where the premium declined. The 10-year U.S. Treasury rate, the other component of cap rates, dropped from 2.36% in Q2 to 2.17% in Q3 — reversing much of a sudden jump seen in the second quarter.
The apartment sector's premium was the lowest of the five major sectors in Q3, resting at 3.6 percent. This potentially leaves apartment cap rates with the highest exposure to rising interest rates. Despite the apartment sector's quarterly decline, the risk premia in all sectors remained higher than one year ago

Instant Insights /

Slowdown Continued in Q3 Auction.com Says

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