CRE Prices Are Rising Even as Transactions Continue to Tumble
The annual rate of US commercial real estate price growth ticked up 1.4% in September.
Commercial property transactions fell again in the third quarter, according to the latest edition of US Capital Trends from Real Capital Analytics.
Dollar volume dropped 57% year-over- (YOY) year in Q3, but rose 37% on a quarterly basis. RCA says that is a more significant increase than usual seasonal activity patterns.
At the same time, the annual rate of US commercial real estate price growth ticked up 1.4% in September. RCA said that continued price gains in the apartment and industrial sector balanced out declines in retail and office prices.
Apartment prices rose 0.6% from August to September and jumped 6.7% YOY, after posting double-digit gains earlier in the year, according to RCA. In contrast, CREXi reported that multifamily price-per-square-foot fell .64% month-over-month in its recent commercial real estate September. This decline comes off of two consecutive months of 6%-plus growth in multifamily and four successive months of cap rate compression.
Industrial, which has been the most stable of the property type price indices, produced gains in the mid-7% annual growth range, according to RCA. CREXi also saw growth, saying that the price per-square-foot for industrial assets increased 17.9% month-over-month in September.
According to RCA, retail prices ticked down 0.7% from August and fell 5.3% from September 2019. “This sector, along with hotels, has been pummeled during the ongoing health crisis and may have even more trouble ahead as commercial property loan distress widens,” according to RCA.
Retail assets increased by 7.95% in September, according to CREXi.
Pricing in the office sector barely moved month-over-month but declined 1.5% year-over-year, according to RCA.
Sales of office properties declined 60% in the third quarter versus a year prior, according to US Capital Trends from RCA. Apartment transactions claimed the largest slice of commercial transactions, even though sales fell 51% YOY on the sector.
While there is a lot of money waiting for distressed assets, they claimed only 1% of the overall market in the third quarter. That share was higher for the troubled hotel and retail sectors, according to RCA. In hard-hit retail, distressed sales accounted for 3% of deal volume. In hotels, another sector ravaged by COVID-19, 9% of sales were related to distress.