CRE Price Growth Speeds Up; Industrial Leads Again

U.S. commercial real estate prices rose in May at their fastest annual rate this year, propelled by a jump in industrial property prices, reported Real Capital Analytics, New York.

RCA Senior Analyst Wyatt Avery said the firm’s National All-Property index increased 1.1 percent in May and is up 7.2 percent from a year ago.

Industrial sector price growth equaled 1.5 percent in May, Avery said. “Even as deal volume has been falling for this sector, prices have continued to rise amid investor demand,” he said. “Warehouse properties in the supply chain have attracted investment as the retail landscape changes.”

But RCA reported industrial sector deal activity dropped in May, as it did in April. “The decline points to a lack of significant entity and portfolio deals compared with a year ago rather than a lack of buyer interest,” Avery said, noting large deal volume will likely get a boost when Blackstone’s announced $18.7 billion purchase of 179 million square feet of industrial assets from GLP closes.

Apartment, retail and central business district office prices also grew during May, while suburban office price increases slowed, Avery said.

Green Street Advisors, Newport Beach Calif., said property values of real estate investment trust-owned assets continued upward at an “inflationary” pace of 0.7 percent in May. Green Street’s index has increased by 1.6 percent over the past year, in line with the modest appreciation seen over the past three years.

“Commercial property pricing continues to follow the course of the prior three years, a path where cap rates have been stable and values have risen at an inflationary pace,” said Green Street Advisors Managing Director Peter Rothemund. “That generalization is not true of all property types, however. Those with strong rent growth, [including] industrial and manufactured home communities, have seen large increases in prices, while retail, facing shrinking demand, has seen values fall.”

Rothemund noted strip retail properties and malls are down about 10 percent and 20 percent, respectively, from their 2016 peak.

CoStar, Washington, D.C., said lower development level throughout this real estate cycle have generally supported continued price growth. “The moderate pace of deliveries this cycle has supported balanced market fundamentals and continued price growth as the cycle has matured,” the company’s CPPI report said, noting deliveries across the office, retail and industrial property types will remain under 500 million square feet for the 12 months ending in June, a 13 percent decrease from the prior 12-month period and well below the previous cyclical peak of more than 850 million square feet in 2008.