CRE Price Increases Slow
Though commercial real estate prices soared in 2015, valuations increased just 19 basis points in January, the slowest increase since early 2014, reported CoStar and Ten-X.
CoStar, Washington, D.C., said improving CRE fundamentals, surging investor demand and liquid capital markets “propelled” prices upward in 2015. Its value-weighted pricing index rose 12.5 percent last year to a new high 19.1 percent above its prerecession peak.
But Ten-X (formerly Auction.com), Irvine Calif., said commercial valuations increased just 19 basis points in January from December, the slowest rate since early 2014.
“The first reading on commercial property markets in 2016 shows property values increasing, but still at a slower pace as the previously divergent growth rates of the different property segments continue to converge,” said Ten-X Chief Economist Peter Muoio.
Muoio said retail valuations increased 58 basis points in January and apartment valuations increased 39 basis points, while the most significant gain came from the industrial sector, which rose 215 basis points following a standout performance in December. Office valuations slowed during the month, dropping 65 basis points and hotel valuations continued their downward trend, dropping 122 basis points for the month following similarly lackluster showings in November and December.
“Of particular interest this month is the increased valuation in retail properties in light of the fact that e-retail now accounts for a larger portion of consumer spending,” Muoio said, noting that the sector bears watching “to see if retail’s value gains are being driven primarily by capital flows and sentiment, which could mean that this sector is at risk of weaker readings in the future.”
CoStar said pricing in core markets set records in 2015, but investors moving out on the risk spectrum in search of higher yields resulted in equally strong sales activity in non-core markets and property types. The research firm’s equal-weighted pricing index, which is heavily influenced by lower-value properties typical in secondary and tertiary markets, rose 12.6 percent last year to within 3.4 percent of its previous high-water mark.
In a repeat of patterns forged over the last few years, transaction activity spiked in December as investors rushed to close property transactions by year-end, CoStar reported. December composite pair volume of nearly $18 billion represented the highest monthly total on record and lifted total volume for 2015 to $128.3 billion. This marked a 26.2 percent increase from the previous calendar year peak reached in 2014.
