C&W: Transaction Volumes Likely to Decelerate

U.S. commercial property sales could approach $450 billion in 2017, down from last year’s $494.1 billion, reported Cushman & Wakefield, New York.

Transaction volumes will likely decelerate further next year to $437 billion, Cushman & Wakefield Global Chief Economist Kevin Thorpe said in his firm’s U.S. Macro Forecast report. “Coming off of a two-year streak with more than half a trillion dollars in trades in both 2015 and 2016, this deceleration is partially a function of fewer assets being positioned for sale,” he said.

Last year investment activity reached 2.7 percent of nominal GDP, Thorpe said, noting that he expects this figure to “moderate” as the real estate cycle continues. 

“Investing in a maturing cycle is always difficult, but the engines suggest there is still plenty of activity ahead,” Thorpe said. “Reflecting continued investor demand for commercial real estate allocations, dry powder at closed-end funds targeting commercial real estate assets is at an all-time high, supporting our outlook for healthy deal activity, but it will be slower.”

Uncertainty both domestically and abroad has not led to price drops, but commercial real estate value growth has tempered “substantially,” Thorpe said. The broadest measure of asset prices, the RCA/Moody’s Commercial Property Price Index, grew at a 7.1 percent year-over-year rate in 2016, nearly half of its 2015 14.1 percent growth rate.

Thorpe noted the RCA/Moody’s CPPI is forecast to increase 6.6 percent this year and 2.3 percent in 2018. “Of course, the outlook for prices is one reason why returns also are moderating over the next few years,” he said.

Cushman & Wakefield Head of Americas Forecasting Rebecca Rockey said broad deceleration in returns hides considerable variation. “Secondary markets have recently outperformed core markets on a price-return basis, closing some of the historically wide gap that accumulated during the cycle,” she said. “Similarly, suburban office returns have accelerated and are beginning to close the gap relative to other asset classes.”

Rockey also noted other industrial and retail assets have felt “divergent” effects from growing e-commerce, which drove total retail returns lower while sustaining industrial returns.

“All in all, upside risks more than offset the downside risks to our outlook,” Thorpe said. “As we assess the future trajectory of the property markets, the positives comfortably outweigh the negatives. We may be entering into the final stage of the U.S. expansion, but that doesn’t mean the final stage can’t go for a lot longer.”