Pricing Rises in 4 Out of 5 Sectors

IRVINE, CA—This month saw a modest increase in property valuations, with pricing increasing in four of the five major property sectors, according to Ten-X's latest Commercial Real Estate Nowcast. The firm reported separately that transaction volume rose in the third quarter, marking the first quarterly increase this year.

November's monthly pricing gains ranged from 3.7% for office to more modest gains of 1.1%, 1.3% and 1.8% for multifamily, retail and industrial, respectively. Hotel values, conversely, continued a six-month decline, and are now 8.5% lower than a year ago.

“With the exception of the hotel sector, it's been an encouraging month for commercial real estate pricing, thanks to a boost in investor confidence as broad economic indicators continue to point upward,” says Peter Muoio, chief economist at Ten-X. “In particular, pricing in the office and apartment sectors have benefited from continued healthy demand and rent growth, reflecting an economy that is creating jobs and strengthening wages.”

The lodging sector was also the only sector to see an increase in risk premiums during Q3; the 10-basis point rise marked the fifth consecutive quarterly increase in risk premiums for hotels, according to Ten-X's Commercial Real Estate Capital Trends report. More broadly, the report shows that Q3 marked a 2.1% increase in transaction volume from the prior quarter, as volume totaled $111 billion—with hotels as well as apartments leading the way.

Each of the five major sectors outperformed outperformed its 10-year total dollar volume average during Q3. Apartment volume outperformed its average by more than 70%, with consistently increasing rents underpinning the market's overall confidence in the sector. The multifamily sector was responsible for 33.2% of transactional volume in Q3, well above its 10-year average for overall market share.

However, Ten-X notes that aside from the late-2015 surge in volume, the overall market appears to have plateaued since 2014. Year-over-year volume was down 0.3% in Q3. Yet factors ranging from wage increases to the market's continued draw for foreign investors are helping it stay strong.

“While widespread volatility in the wake of Brexit and the uncertainty surrounding the US presidential election have hampered many major markets across the world, the domestic commercial real estate market has remained the picture of resilience,” Muoio says. “Property prices continue their steady climb while interest rates appear poised to remain historically low, making the market a relatively safe haven for investors looking for shelter from swirling global headwinds.”

IRVINE, CA—This month saw a modest increase in property valuations, with pricing increasing in four of the five major property sectors, according to Ten-X's latest Commercial Real Estate Nowcast. The firm reported separately that transaction volume rose in the third quarter, marking the first quarterly increase this year.

November's monthly pricing gains ranged from 3.7% for office to more modest gains of 1.1%, 1.3% and 1.8% for multifamily, retail and industrial, respectively. Hotel values, conversely, continued a six-month decline, and are now 8.5% lower than a year ago.

“With the exception of the hotel sector, it's been an encouraging month for commercial real estate pricing, thanks to a boost in investor confidence as broad economic indicators continue to point upward,” says Peter Muoio, chief economist at Ten-X. “In particular, pricing in the office and apartment sectors have benefited from continued healthy demand and rent growth, reflecting an economy that is creating jobs and strengthening wages.”

The lodging sector was also the only sector to see an increase in risk premiums during Q3; the 10-basis point rise marked the fifth consecutive quarterly increase in risk premiums for hotels, according to Ten-X's Commercial Real Estate Capital Trends report. More broadly, the report shows that Q3 marked a 2.1% increase in transaction volume from the prior quarter, as volume totaled $111 billion—with hotels as well as apartments leading the way.

Each of the five major sectors outperformed outperformed its 10-year total dollar volume average during Q3. Apartment volume outperformed its average by more than 70%, with consistently increasing rents underpinning the market's overall confidence in the sector. The multifamily sector was responsible for 33.2% of transactional volume in Q3, well above its 10-year average for overall market share.

However, Ten-X notes that aside from the late-2015 surge in volume, the overall market appears to have plateaued since 2014. Year-over-year volume was down 0.3% in Q3. Yet factors ranging from wage increases to the market's continued draw for foreign investors are helping it stay strong.

“While widespread volatility in the wake of Brexit and the uncertainty surrounding the US presidential election have hampered many major markets across the world, the domestic commercial real estate market has remained the picture of resilience,” Muoio says. “Property prices continue their steady climb while interest rates appear poised to remain historically low, making the market a relatively safe haven for investors looking for shelter from swirling global headwinds.”