Ten-X: Commercial Valuations Jump
Commercial valuations increased 1.9 percent in August despite slowing deal volume, marking the strongest monthly increase this year and a 6.4 percent year-over-year gain, reported Ten-X, Irvine, Calif.
Ten-X’s pricing index combines Google Trends data, proprietary transaction data and investor surveys to forecast CRE pricing trends in real time.
“The recent string of monthly increases in commercial real estate valuations confirms that pricing remains on the upswing following the weakness seen earlier this year,” said Ten-X Chief Economist Peter Muoio.
Muoio called the sector’s strength this summer an important signal to real estate investors. “Despite the array of global challenges and the heightened uncertainty brought about by the U.S. presidential election, commercial real estate’s pricing growth remains on track,” he said.
Pricing increased across all property segments for the first time since late 2015, Muoio said. The office sector posted the strongest gain for the third consecutive month, rising 5.8 percent from July and 13.3 percent above its year-ago level.
“The strength in office pricing is oddly juxtaposed against still tepid fundamentals,” Muoio said, noting that office vacancies remained flat in the second quarter and effective rent growth slowed. “Office pricing has now fully climbed out of the hole it fell into early this year and is at a level where it would have been if growth had continued at its pre-swoon pace.”
Ten-X said multifamily posted the most consistent gains this year, increasing 1.9 percent from July and 8.7 percent from last year-ago levels. Multifamily vacancies held steady nationwide in the second quarter and rent growth accelerated. “Investors may be looking past nearer term cyclical deterioration from increased development and focusing on the strong long-term social and demographic trends supporting this property segment,” Muoio said.
Industrial real estate saw its first gain since April, increasing 1.8 percent from July and 12.6 percent above its year-ago level. “Industrial properties continue to benefit from demand emanating out of e-commerce as well as bricks and mortar retailers upping their customer fulfillment game in order to remain competitive,” Muoio said, noting that warehouse vacancies fell 10 basis points in the second quarter “and rents keep chugging along at a healthy pace.”
Hotels showed a modest 0.1 percent gain in August following a flat July, suggesting that the freefall in hospitality pricing may have halted–at least temporarily, Ten-X said. But hotel pricing remains well below the October 2015 peak and the minimal gain seen in August reflects slightly more bullish views among investors surveyed, as both Google search trends and Ten-X platform deal pricing remained weak, the report said.
Retail asset pricing also increased slightly in August, rising 0.2 percent from July and 6.5 percent from a year ago as fundamentals continue along their slow path to recovery while investors remain wary of e-retail’s impact on bricks and mortar stores.
