Offices continue to lead the market
Commercial real estate markets are essentially healthy but there are no consistent growth patterns.
A new report from CRE transaction platform Ten-X Commercial shows that transaction volume totaled $111.4 billion in the second quarter of 2018, up 1.5% from the previous quarter and up 1.7% from Q2 2017.
Deal volume quarter-over-quarter was largely unchanged in the office and apartment sectors and decreased in industrial and hospitality.
The retail sector halted a 2-year decline with an increase to $20.7 billion, its highest point since late 2014.
"Overall CRE deal volume remains healthy, with overall deal flow up slightly amid variations across the different property segments," said Ten-X Chief Economist Peter Muoio. "It appears that the bid-ask price gap between sellers and buyers has diminished, aiding the market as a whole, but investors continue to digest shifting fundamentals across the property segments, driving ups and downs quarter-to-quarter."
Pricing increase
Ten-X Commercial’s analysis suggests that property valuations grew slightly for the sixth consecutive month with a 0.1% increase in July.
It shows that the office sector continued to be an outlier with a substantial 1% pricing increase for the second consecutive month; and a 4.4% increase from the same period last year.
“The office sector is the only sector to show prominent pricing gains in recent months," said Muoio. "Pricing gains were concentrated in the West, Southwest and Southeast; while pricing declined in the Northeast and Midwest."
Cap rates remained relatively steady, driving tighter spreads across all CRE sectors.
"The tighter cap rate spreads suggest that investors have more confidence in the commercial real estate market," said Muoio. "From apartment to office, the ongoing wholesale compression in spreads has pulled cap rate spreads in each major CRE market below their 10-year averages. While this speaks to investor confidence in CRE, it places valuations more at risk from continued interest rate increases as spreads have now compressed significantly."
