CRE Fundamentals Power Through in Q2

IRVINE, CA—Despite a 12.7% year-over-year decline in overall transaction volume in the second quarter, the fundamentals underpinning commercial real estate continue to illustrate a relatively strong marketplace, Ten-X said Wednesday. The online real estate marketplace pointed to the sector's position as an increasingly safe investment for foreign entities.

“While the downward trend in deal volume may appear to be cause for concern, our research shows that the US CRE market continues to provide attractive investment opportunities, particularly in the face of widespread uncertainty following Brexit and other financial and political turbulence abroad,” says Peter Muoi, chief economist with Ten-X. At the same time, he adds, “property prices have rebounded from their winter lull, and are up over 8% across all sectors from this time last year.”

Ten-X notes that the resilience of the domestic CRE market comes amid a tumultuous period in many major foreign economies. In particular, Chinese investment in many gateway US markets has been a byproduct of this global uncertainty.

And even though sales volume dipped to $101.2 billion from the year-ago period, marking the second consecutive quarter of Y-O-Y declines, Q2 also represented the eighth consecutive quarter in which deal volume surpassed the $100-billion threshold, illustrating the strength of overall confidence in the market, says Ten-X. Moreover, the 12-month rolling total remains just 11% behind the pre-recession peak.

Four of the five major food groups outperformed their 10-year averages by more than 20%, and continued investor demand in multifamily properties spurred the apartment sector to exceed its average by 55%. The exception to the rule was the hotel sector, in which total deal volume plummeted by more than half from the same period in 2015.

Apartments dominated Q2 in another way: market share. The sector accounted for 32.3% of transactional volume in Q2, surpassing  its 10-year average. Conversely, office, industrial, retail and hotel all lagged behind their respective market share averages.

High liquidity and investors' continuing pursuit of yield drove property pricing out of the winter doldrums seen in Q1. Overall pricing was up 8.4% from Q2 of last year. After getting off to a slow start in Q1, the Ten-X All Property Nowcast, which gauges national pricing through a combination of proprietary and third-party data, has now risen for five straight months, including a 1.1% increaes in July that marked the largest increase of the year of the year to date.

The Industrial Nowcast declined by 1.2% in July, say Ten-X, the only sector to see a dip during an otherwise strong month. Despite the decline, though, the sector still managed Y-O-Y growth of 11.7%, the highest of any of the five sectors.

The Office Nowcast has seen annual growth of 7.6%, while the apartment and retail sectors have risen 6.8% and 6.4%, respectively, from the year-ago period. The Ten-X Hotel Nowcast was flat in July amid a year-long slump that has seen a total decline of 4%.

Riding on a wave of urbanization and a widespread societal shift toward apartment living, multifamily prices are now ahead of their previous peak by 46.7%. Industrial and hotel prices were 7.5% and 9.7%, respectively, above their prior peaks. Only office sector trailed its previous best, albeit by a modest 1.2%, while retail prices eked out a 0.1% gain over their prior peak during Q2.

More than 300 of the industry's leading national investors, REITs, banks, private equity firms, asset management firms and other institutions will join us as we explore the market conditions behind the trends at this year's RealShare National Investment & Finance, scheduled for Oct. 5 and 6 at the Roosevelt Hotel in New York City. Learn more.

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.

IRVINE, CA—Despite a 12.7% year-over-year decline in overall transaction volume in the second quarter, the fundamentals underpinning commercial real estate continue to illustrate a relatively strong marketplace, Ten-X said Wednesday. The online real estate marketplace pointed to the sector's position as an increasingly safe investment for foreign entities.

“While the downward trend in deal volume may appear to be cause for concern, our research shows that the US CRE market continues to provide attractive investment opportunities, particularly in the face of widespread uncertainty following Brexit and other financial and political turbulence abroad,” says Peter Muoi, chief economist with Ten-X. At the same time, he adds, “property prices have rebounded from their winter lull, and are up over 8% across all sectors from this time last year.”

Ten-X notes that the resilience of the domestic CRE market comes amid a tumultuous period in many major foreign economies. In particular, Chinese investment in many gateway US markets has been a byproduct of this global uncertainty.

And even though sales volume dipped to $101.2 billion from the year-ago period, marking the second consecutive quarter of Y-O-Y declines, Q2 also represented the eighth consecutive quarter in which deal volume surpassed the $100-billion threshold, illustrating the strength of overall confidence in the market, says Ten-X. Moreover, the 12-month rolling total remains just 11% behind the pre-recession peak.

Four of the five major food groups outperformed their 10-year averages by more than 20%, and continued investor demand in multifamily properties spurred the apartment sector to exceed its average by 55%. The exception to the rule was the hotel sector, in which total deal volume plummeted by more than half from the same period in 2015.

Apartments dominated Q2 in another way: market share. The sector accounted for 32.3% of transactional volume in Q2, surpassing  its 10-year average. Conversely, office, industrial, retail and hotel all lagged behind their respective market share averages.

High liquidity and investors' continuing pursuit of yield drove property pricing out of the winter doldrums seen in Q1. Overall pricing was up 8.4% from Q2 of last year. After getting off to a slow start in Q1, the Ten-X All Property Nowcast, which gauges national pricing through a combination of proprietary and third-party data, has now risen for five straight months, including a 1.1% increaes in July that marked the largest increase of the year of the year to date.

The Industrial Nowcast declined by 1.2% in July, say Ten-X, the only sector to see a dip during an otherwise strong month. Despite the decline, though, the sector still managed Y-O-Y growth of 11.7%, the highest of any of the five sectors.

The Office Nowcast has seen annual growth of 7.6%, while the apartment and retail sectors have risen 6.8% and 6.4%, respectively, from the year-ago period. The Ten-X Hotel Nowcast was flat in July amid a year-long slump that has seen a total decline of 4%.

Riding on a wave of urbanization and a widespread societal shift toward apartment living, multifamily prices are now ahead of their previous peak by 46.7%. Industrial and hotel prices were 7.5% and 9.7%, respectively, above their prior peaks. Only office sector trailed its previous best, albeit by a modest 1.2%, while retail prices eked out a 0.1% gain over their prior peak during Q2.

More than 300 of the industry's leading national investors, REITs, banks, private equity firms, asset management firms and other institutions will join us as we explore the market conditions behind the trends at this year's RealShare National Investment & Finance, scheduled for Oct. 5 and 6 at the Roosevelt Hotel in New York City. Learn more.

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.