Irvine, California–based Ten-X Commercial reports that commercial real estate pricing rose 0.1 percent in April — the third consecutive monthly gain for its CRE Nowcast — but despite the slight uptick, the index posted a 1.4 percent decline compared to April 2017. This decrease represents the first time the index has seen a year-over-year decline since its inception.
The monthly pricing index combines Google Trends data, Ten-X Commercial’s proprietary transaction data, and investor surveys to indicate CRE pricing trends in real time. According to the firm’s chief economist Peter Muoio, “A pricing drop compared to 2017 is a clear indication that successive interest-rate increases and stock-market volatility are having a negative effect on commercial real estate investor sentiment. Additionally, many investors are cognizant of the extraordinary long age of this economic cycle and preparing for the possibility of a downturn.”
April’s pricing gains in the office and retail sectors were enough to offset declines in the industrial and hotel property segments, the Nowcast reports. Apartment pricing remaining unchanged compared to March.
Despite the positive headlines and robust fundamentals benefitting the segment, the Ten-X Industrial Nowcast has been a laggard in recent months and continued that trend in April, with a 0.7 percent decrease. The year-over-year pricing decline deepened to 5.1 percent, the worst annual performance of any sector. Uncertainty surrounding trade policy may be curbing investor appetite, as evidenced by softness in the survey data. The Midwest was the only region that saw a pricing increase on the month, rising 1.4 percent.
The Ten-X Hotel Nowcast remained weak in April, edging down 0.1 percent. With three declines in the last four months, the index has plunged to 3.9 percent since April 2017. The sector is marked by pressure on occupancy due to supply additions in many markets. Meanwhile, the boost the sector enjoyed as a result of natural disaster-driven dislocations in Houston and Florida will be transitory. All regions saw pricing declines in April except for a modest gain in the Northeast.
Pricing in the apartment sector held steady in April, as large gains in the Northeast offset a decline in the Midwest, according to the Ten-X Apartment Nowcast. Pricing is now 2.3 percent lower than a year ago. Situs survey data shows that investors are concerned about apartment fundamentals, likely due to the robust pipeline of new supply coming online nationally. Transactions on the Ten-X Commercial platform echo this sentiment, with recent bidding softer than expected.
The Ten-X Office Nowcast posted its third gain in the last four months, rising 0.6 percent in March, to bring the year-over-year increase to 1.0 percent. Investor sentiment toward the sector remains lukewarm, per Situs survey data, in contrast to bidding data on the Ten-X platform, which was positive. Pricing gains were concentrated in the Southwest, which saw a 3.6 percent jump in April. Other regions saw minimal price change, while the Midwest posted a 1 percent decline.
The Ten-X Retail Nowcast continues to surprise in light of its oft-repeated challenges, which are reinforced by constant headlines of retailer bankruptcies and persistent high vacancy rates. The Ten-X Retail Nowcast edged up yet again, increasing 0.5 percent in April. The index is now 3.4 percent higher than a year ago. Retail pricing gains were the largest in the Midwest, where they rose 1.7 percent since March. Bidding trends on the Ten-X Commercial platform support the picture of the sector’s strength. Investor sentiment was fairly mixed but showed positive expectations for cap rates in the Midwest.
“While the Nowcast has climbed for three consecutive months, these gains have been fairly nominal, and the months of decline in late 2017 are weighing heavily on year-over-year figures,” says Muoio. “With an aging economic cycle and rising interest rates, it is not overly surprising to see that three out of the five CRE sectors’ Nowcasts have declined since April 2017.”