Prices Show Strongest Gains Since November
Commercial valuations grew by 1 percent during April, the strongest growth seen since the November presidential election, reported Ten-X, Irvine, Calif.
Commercial real estate has now risen 9.6 percent over the last 12 months–the strongest rate of annual growth since early 2016–noted Ten-X Chief Economist Peter Muoio. He cited a slide in interest rates in the lead-up to France’s presidential election as one reason for the growth.
“April produced promising returns across much of commercial real estate, with an unlikely leader–the hotel sector–setting the pace,” Muoio said. “The hotel sector has been stuck in a prolonged slump due to significant incoming supply, changes in consumer behavior and declines in international tourism.”
Ten-X said the hotel sector saw a “surprising” pop in pricing during April, surging 1.3 percent to a point 1 percent above year-ago levels after 11 consecutive months with negative annual growth readings. “Much of the hotel sector’s gains occurred in the southwest and southeast, where fundamentals remain strong and supply pipelines are relatively low,” the report said. It noted that hotel pricing in the northeast continued to decline, “with New York likely weighing down the region owing to its onerous supply pipeline and the new administration’s travel restriction efforts causing a decline in tourism to major gateway markets.”
The apartment sector also posted a significant pricing increase in April, continuing its “remarkable” run, Muoio said. The sector’s 1.3 percent growth approached its performance over the previous two months, pushing pricing up 15.1 percent year-over-year.
“Despite tight cap rate spreads, which indicate that apartment properties may have reached peak value, investors remain bullish on the segment,” the report said. “The Midwest and West regions posted the strongest growth for the month, with the Southwest standing out as the weakest performer. The Southwest’s poor performance is likely due to the economic slowdown in various energy-exposed markets, as oil prices continue their slump.”
Office properties also showed a “promising” 1.1 percent increase in April, Ten-X said, ending a four-month streak of either flat or middling growth. Office prices now stand more than 22 percent above year-ago levels, the strongest annual gain since 2014. “The country’s labor market remains robust, which should support the continued health of office fundamentals,” the report said. “All regions posted positive growth during April, with the southwest emerging as the strongest performer.”
Both the retail and industrial sectors lagged behind their counterparts during April, returning 0.6 percent and 0.7 percent gains, respectively, Ten-X said. Industrial properties have risen 5.4 percent and retail just 4.8 percent over the last year. Retail is experiencing its slowest growth since late 2014, due in large part to bankruptcies and store closures of various high-profile retailers. The industrial sector is strong nationally, with all regions but the southwest showing gains this month. The ongoing slump in oil prices is restraining that region’s industrial sector, which tempered the segment’s overall growth.
“With uncertainty mounting during the lead-up to France’s election, sliding interest rates gave U.S. commercial real estate a welcome boost during April,” Muoio said. “While the industry saw its biggest gains since November, investors are staying patient as they await more clarity on the country’s economic and policy outlook under the new federal administration.”
