Retail, Office Prices Drop as Apartment, Industrial Gain

Real Capital Analytics, New York, reported commercial real estate price growth increased at a 1.4 percent annualized pace in September as gains in apartment and industrial sector prices offset declines in retail and office price.

The RCA National All-Property Index gained 0.2 percent during September, said RCA Senior Analyst Wyatt Avery.

Avery said retail sector property prices sank 0.7 percent from August and dropped 5.3 percent from September 2019. “This sector, along with hotels, has been pummeled during the ongoing health crisis and may have even more trouble ahead as commercial property loan distress widens,” he said.

The office sector index changed little during September but declined 1.5 percent year-over-year, Avery noted. “The pandemic has interrupted demand for office space, with future trends still uncertain,” he said.

Apartment prices gained 0.6 percent in September from August and rose 6.7 percent year-over-year. “The multifamily price index has slowed from the double-digit pace seen earlier this year, but deal activity has fared better during the pandemic than most of the other property sectors,” Avery said. And the industrial sector remained the most stable of the property types with growth in the mid-7 percent annual range.

Green Street, Newport Beach, Calif. reported its price index of real estate investment trust-owned properties held steady in September. The all-property index is 10 percent below pre-pandemic levels, but pricing is asset-specific with significant variation by property type.

“Pricing of properties with little downside to rents–and those with a high-credit tenant and significant lease term–has held up; in some instances, values are higher than they were prior to the pandemic,” said Green Street Managing Director Peter Rothemund. But he noted prices of most other properties have fallen between 5 and 15 percent.

“Lodging and malls are down even more than that,” said Rothemund. “Transaction volume has been light, so for some property sectors it is tough to give precise estimates.”

RCA agreed commercial real estate sales activity “tumbled” again in the third quarter compared to deal levels of a year ago. But its U.S. Capital Trends report found some “glimmers of improvement” in recent trends.

Dollar volume of properties changing hands in the third quarter dropped 57 percent year-over-year but rose 37 percent compared to second-quarter levels. Apartment property sales were the largest component of CRE transactions. Sales of office properties declined 60 percent in the third quarter versus a year prior.

RCA said sales of commercial property out of distressed situations totaled 1 percent of the overall market during the third quarter, mostly made up of hotel and retail assets. Retail sector distressed sales represented three percent of deal volume and in the hotel market 9 percent of sales were related to distress.