CRE Annual Price Growth Slows in October

Annual growth in U.S. commercial property prices fell in October to the slowest pace seen this year, reported Real Capital Analytics, New York.

RCA’s National All-Property Index rose 0.4 percent in October, pushing the annual growth figure to 6.4 percent. The annual price growth pace has gradually slowed since reaching its 8.4 percent high point in February.

RCA Analytics Manager Elizabeth Szep said “waning” growth in major metros slowed national price growth. Major-market prices started the year at an 8.8 percent annual pace, but that dropped to 3.1 percent in October. Non-major metros saw price growth of 7.8 percent year-over-year in October.

Green Street Advisors Managing Director Peter Rothemund noted cap rates have not changed meaningfully over the past few months, with top-line growth responsible for the “modest” appreciation in values seen. “There are some exceptions,” he said. “The bid for manufactured home communities and student housing continues to be strong and is pushing values up, while the lack of transaction activity in the mall sector suggests values have taken another step down and are now about 15 to 20 percent below recent highs.”

Rothemund noted Green Street’s Commercial Property Price Index has increased 2 percent over the past year, consistent with the pace of gains seen since mid-to-late 2016.

Total deal activity remained flat in October compared with a year earlier, RCA reported. Headline volume figures would have dropped if not for a large entity-level industrial sector deal. For 2018 to date, commercial real estate deal volume is up 10 percent compared to the same period in 2017, helped by a string of large entity-level transactions. Investor concerns about interest rate increases hobbled activity for most property types in October, Szep said.

CoStar’s commercial repeat sales analysis reported price indexes posted “moderate” annual gains despite relatively flat performance in October. “While the pace of growth has slowed as the cycle matures, composite price indices continued to make steady gains on an annualized basis,” the research firm said. CoStar’s value-weighted index, which tracks larger asset sales seen mostly in core markets, dipped 0.1 percent in October (though it remained up 3.4 percent for the prior 12 months). The firm’s equal-weighted index, which reflects the more-numerous but lower-priced sales generally seen in secondary and tertiary markets, dipped 0.3 percent in October but maintianed a 7.0 percent annual gain.