Commercial Prices Grow Again in June, Led by Apartments
Real Capital Analytics, New York, said U.S. commercial property price growth shifted higher in June, led by the apartment sector.
The RCA all-property price index grew 0.8 percent from May and 9.8 percent from a year ago, the fastest annual growth rate since 2015, said Michael Savino, a Senior Analyst with RCA.
Apartment sector price growth accelerated to a 12 percent annualized rate, RCA reported.
“Industrial property pricing, too, reflects an in-demand sector,” Savino said. The firm’s industrial price index rose 9.8 percent from a year ago, staying in the 9 percent-10 percent range seen since the crisis began.
The office sector index rose 6.0 percent compared to the year prior, the best performance since 2018. Suburban office prices led the way with a 7.7 percent year-over-year growth rate. Central business district office prices declined, falling 2.4 percent annually.
Prices rose in the beleaguered retail sector, but not nearly as much as other sectors. Retail property prices rose just 3.2 percent from a year ago. “While this rate is an improvement on the pace seen in recent quarters, it is still below the overall pace of inflation in the U.S. economy,” Savino said.
RCA said CRE sales activity rebounded “back to activity levels seen prior to the pandemic” in the second quarter. Average deal volume in the second quarter was 14 percent greater than the average seen between 2015 and 2019. Investment activity grew at a triple-digit rate compared with the COVID-related slump seen in second-quarter 2020.
“In a sign of market strength, it was the sale of individual assets rather than portfolio and entity-level deals which spurred the [investment activity] growth,” RCA said. In dollar terms, second-quarter single-property transaction activity was 17 percent above the pre-COVID trend.
Green Street, Newport Beach, Calif., reported its price index of properties owned by real estate investment trusts held essentially steady in June. The firm’s all-property index has increased 11 percent over the past twelve months to a point just 1 percent below pre-COVID levels.
“The realization that property fundamentals are a lot healthier than was expected combined with borrowing costs and discount rates that are about as low as they’ve ever been is causing investors to pay higher and higher prices,” said Peter Rothemund, Managing Director at Green Street. “With the economy on stable ground and many property investors paying interest at 2 percent per year or less, further price gains are almost a certainty.”