Cushman & Wakefield: ‘Restrained’ First Half

Transaction activity picked up in the second quarter in absolute terms–volumes increased 7 percent quarter-over-quarter–and relative to 2016, reported Cushman & Wakefield, New York.

In addition, first-quarter volume data was revised upwards, from -26 percent to -15 percent year-over-year.

“These developments underscore our earlier assessments that activity would accelerate but that overall the capital markets remain restrained by the uncertainty about how to deploy and redeploy capital in the later stages of the economic cycle,” Cushman & Wakefield Senior Director of Capital Markets David Bitner said.

In first-half 2017, investment sales volumes totaled $188 billion, down 11 percent from the same period in 2016 when $211.7 billion traded, Bitner said. Portfolio sales declined the most on a percentage basis, falling 18 percent. Single-asset sales accounted for most of the overall decline–$13.8 billion of a total $23.7 billion; on a percentage basis, single-asset sales were down 9 percent compared to first-half 2016.

“The trend was slightly better when looking at single-asset sales under $100 million–the core of the market–which declined only 4 percent,” Bitner said in Cushman & Wakefield’s U.S. MarketBeat Report. “Large asset sales and portfolio deals tend to be more pro-cyclical–they move more in sync with the fluctuations of the economic cycle. It is therefore not surprising that large single-asset transactions and portfolio sales have declined comparatively more than smaller single-asset transactions as we are now eight years into the expansion.”

Bitner predicted transaction activity will accelerate in the second half as institutions engage the market more aggressively, “increasingly deploying capital into a broader set of markets and product classes than they have previously, as well as into niche asset types.”

Price appreciation will likely remain positive across product types–except possibly some retail segments, the report said. Central business district office returns, which accelerated in recent months, could decelerate while non-major market returns will likely increase relative to the major markets.

“Yields on the highest quality assets will remain fairly stable across asset classes; however, average transaction cap rates will tend to increase as investors search for yield,” Bitner said. “Closer examination by subset and class will likely show greater yield convergence as the cycle continues; recent examples include suburban and central business district office and apartment product.”