Ten-X: Property Values Decline for First Time Since 2010
Commercial valuations decreased 26 basis points in February, led by office price drops, said Ten-X, Irvine, Calif.
Ten-X’s pricing index examined transaction data and investor surveys to forecast commercial real estate pricing trends in real time.
“This February all-sector decrease, which was largely due to sizeable monthly price declines in the office and hotel segments, brings CRE valuations back to a level roughly on par with what we were seeing in November 2015,” said Ten-X Chief Economist Peter Muoio. “While we’ve been reporting a gradual flattening in recent months, this is the first all-sector decline seen since January 2011 (the baseline index period).”
Office valuations dropped 270 basis points for the month, pulling year-over-year gains down to 3.3 percent, a dramatic slide from its late-2015 year-ago growth pace, which topped 12 percent. The hotel sector posted its fourth consecutive monthly drop, falling 133 basis points and lowering its annual gain to 5.2 percent, the lowest seen since summer 2014. Ten-X said many large hotel markets face dual headwinds: reduced foreign travel spending due to the strong U.S. dollar and “massive” construction pipelines.
Meanwhile three property segments saw valuations increase in February. Apartment valuations increased 109 basis points–its strongest monthly gain since last June–marking a 9.7 percent year-over-year increase. Retail real estate rose 91 basis points to reach a 10.2 percent annual increase. And industrial sector valuations increased 93 basis points and reached an 18.3 percent annual growth rate largely due to e-commerce’s positive effect on warehouse and storage space demand.
But Muoio called a short-term industrial real estate slowdown likely. “While we expect online retail sales to continue having a positive impact on industrial valuations, at least in the short-term, global economic shakiness and the strong dollar may disrupt trade flows, impeding demand for industrial space,” he said.
