Commercial Prices Up 7% in November

U.S. commercial property prices rose 7.0 percent in November from a year earlier, continuing “steady” growth, said Real Capital Analytics, New York.

RCA Analytics Manager Elizabeth Szep said the firm’s National All-Property Index rose 0.6 percent during November, consistent with “sustained” investment sales growth in 2018. “Into the year-end, industrial, central business district office and retail properties are all experiencing a positive bump in growth,” she said. “Annual price growth for each of these three types has accelerated for at least the past three months.”

Apartment asset prices were flat in November but rose 9.0 percent year-over-year, tying with suburban offices as the fastest-growing property type. “While apartment price growth has consistently outpaced other types, 9.0 percent represents a slowed pace of growth compared to the double-digit gains which were seen in the first half of the year,” Szep said.

Suburban offices posted the strongest acceleration in price growth so far this year; at the start of 2018 they were increasing at a 4.6 percent year-over-year pace, RCA reported.

Total deal activity slipped in November but annual volume remained on track to surpass full-year 2017 levels, Szep said. The office sector posted declining deal activity through November but the other sectors saw increased activity. The retail and industrial sectors are now more than 20 percent ahead of their year-ago deal volume, lifted by large portfolio and entity-level deals. The hotel sector’s deal volume is more than 40 percent ahead, RCA reported.

CoStar, Washington, D.C., reported similar results. The research firm’s equal-weighted index, which tracks the numerous but lower-priced property sales typically seen in secondary and tertiary markets, was flat in November but up 6.0 percent for the 12-month period ending in November. CoStar’s value-weighted index of larger asset sales generally seen in core markets fell modestly in November but remained up 1.3 percent for the 12-month period ending in November.

Overall absorption has slowed as the real estate cycle has matured, CoStar said. Net absorption across the office, retail and industrial property types is likely to total nearly 540 million square feet for 2018 when final numbers become available, down more than 14 percent from 2017. The market’s investment-grade segment accounted for 80 percent of absorption during December, above its 73 percent historical average. “The increased level reflects tenant preference for higher-quality, well-located space this cycle,” the report said.