Industrial Assets Supporting CRE Price Growth

Real Capital Analytics, New York, said the industrial sector sustained commercial property price growth in July even as CRE transaction volume fell sharply.

Prices rose 0.7 percent across sectors from June, RCA Senior Analyst Wyatt Avery noted. This pushed year-over-year price growth to 6.3 percent, close to the annual gains seen throughout 2019.

But industrial was the only property type that posted accelerating price growth in July, Avery said. The sector’s 0.5 percent growth–its slowest monthly gain of 2019–led to its 12.8 percent increase year-over-year.

Avery noted sales volume fell 21 percent year-over-year in July. “This was the steepest drop of the year so far and came after three months of increasing activity,” he said.

RCA Senior Vice President Jim Costello said when deal volume is climbing, “one might expect to see stronger growth in property prices. This relationship did not hold into the second quarter in the U.S., however, with no uniform trend across property sectors or geographies,” he said.

For example, Costello said central business district office deal volume grew at a 23 percent year-over-year pace in the six largest U.S metros. With that growth, the RCA price index for downtown offices in these areas was up 6.7 percent year-over-year. But for central business district offices in non-major metros, volume was up only 13 percent year-over-year while prices were up 7.5 percent.

Green Street Advisors, Newport Beach, Calif., said its index of real estate investment trust-owned asset prices did not change at all in July. The firm’s all-property index has increased just 1.8 percent over the past year.

“Year-over-year price increases for most property types are in line with or below the rate of inflation,” said Green Street Advisors Managing Director Peter Rothemund. “The two outliers are industrial and manufactured home parks. Rent growth in both sectors is strong and investors continue to bid up prices.” He noted manufactured home parks values are up nearly 20 percent over the past year.

CoStar, Washington, D.C., said its value-weighted CRE price index, which reflects larger asset sales common in core markets that led the economic recovery, has expanded nearly 120 percent since its low point in 2010 and is now 36.7 percent above its pre-recession peak. The firm’s equal-weighted index of more numerous but lower-priced property sales typical seen in secondary and tertiary markets has grown 99.2 percent since 2010 and is now 26.7 percent above its previous peak.