CRE Pricing Marks Fastest Monthly Increase Since Pandemic’s Start
Multifamily and industrial pricing surge, while retail flounders.
While commercial property prices grew at the fastest rate since the beginning of the pandemic in November, the gains weren’t universal.
Real Capital Analytics’ National All-Property Index increased by 5.7% year-over-year in November, but it was the strong price gains in the apartment and industrial sectors that really drove those increases. Industrial prices climbed 9.5% in November, though deal volume is down 26% YOY in the sector, according to RCA. That is the shallowest drop among the major income-producing property types during the pandemic year.
In the apartment sector, prices posted a 7.6% YOY increase in November. RCA says annual returns for the sector have hovered in the mid-7% range over the last few months.
Offices prices declined slightly, while retail prices continued to plummet in November, dropping 6.7% year-over-year YOY. RCA says distressed retail assets account for nearly two-fifths of all outstanding U.S. commercial real estate distress and one-quarter of potential distress.
A Good Time to Buy
With pricing still below pre-pandemic levels, now is a good time for buyers to make a deal, according to John Chang, senior vice president, director of research services at Marcus & Millichap.
It is an excellent time to buy in almost every sector except industrial, a sector that investors should investigate with caution, Chang said, adding that it might even be a good time to sell these assets with prices elevated in some areas of the country.
“It looks like there will be less uncertainty as we go forward,” Chang said. “It’s unlikely prices will fall as uncertainty abates. They will likely only go up.”
Even though the situation is solidifying with the arrival of vaccines, investors shouldn’t plan on a quick turn, he also said. “If they look forward three years, five years or seven and 10 years—the average real estate hold time—then the value becomes apparent,” Chang says.
Having a long-term horizon can pay off.
“Looking at the underlying demand drivers for an asset on a long-term basis is key,” Chang says. “There are many opportunities out there today that have a sound long-term outlook.”