Following two-quarters of growth, commercial real estate transaction volume dipped slightly to $117.4 billion in Q4 2017, according to Ten-X Commercial’s latest Commercial Real Estate Volume & Pricing Trends report. Citing data and analytics company Real Capital Analytics, Ten-X said in a news release dated Feb. 27. 2018, that the figure represented a 0.5% decline from the prior quarter, due to a $6.7 billion drop in deal volume in the industrial sector. Compared to the year-ago period, fourth-quarter investment activity plunged by 13.2 percent, while the annual figured dropped a more modest 6.9 percent to $445.2 billion, the release noted.
Gains were recorded in both the office and apartment sectors, with deal volumes growing $6.2 billion and $1.4 billion from the prior quarter, respectively. That kept the overall decline to just 0.5% from Q3.
Among possible reasons for slowing deal activity, according to Ten-X:
- The looming specter of tax reform
- Persistent concern about the age of the U.S. economic expansion (now in its 104th month)
- The changing of the guard at the Federal Reserve, with Jerome Powell taking over as Fed Chairman from Janet Yellen
“Uncertainty around tax reform-related policy undeniably weighed on deal volume late last year, but the legislation that eventually passed is expected to be beneficial to the real estate industry,” Ten-X Chief Economist Peter Muoio is quoted in the release. “The main question on everyone’s minds now is whether the delayed closings and optimism about the new tax regime will be enough to offset other headwinds and fuel deal volume growth in the first quarter of 2018 and beyond. The run-up in interest rates since the start of the year is a potential downdraft on deal closings as financing costs increase and cap rate expectations change.”
Here is Ten-X’s summary of pricing activity in the five major property segments in February:
INDUSTRIAL – Pricing rose 1% in February, reversing a January decline, and narrowing the segment’s year-over-year pricing decline to 3.3%. The strengthening of the industrial economy in recent months has given investors renewed confidence that demand will continue. Still, threats about tariffs and other trade barriers remain a risk for this segment.
APARTMENT – Pricing in the apartment sector posted a 0.4% increase after seven consecutive months of contraction. In the past year, apartment prices have remained essentially flat, with pricing just 0.2% higher than a year ago.
RETAIL – Retail pricing increased 0.1% in February, even as the sector’s headwinds – the rise of e-commerce and shifting consumer spending preferences – remain in place. The index is now a solid 6.0% above year-ago levels, far outstripping the annual gains of any other segment. Nevertheless, the sector seems vulnerable to additional retail bankruptcies and store closings, especially if the U.S. economic expansion slows.
OFFICE – The sector saw a 0.3% decline in February. Office pricing is essentially unchanged since early 2017, as fundamentals paint a mixed picture, and year-over-year gains are at a paltry 0.1%. All regions saw declines in February, except for the Southeast, which climbed to its highest mark on record.
HOTEL – The hotel sector posted its seventh decline in 10 months, falling 0.4% in February. Hotel pricing is now 0.9% lower than a year ago. On an annual basis, the Southwest, Southeast and Midwest are down sharply, while the two coasts remain positive from a year ago.
To read the complete Ten-X release, click here.
About Ten-X Commercial
Ten-X Commercial is among the nation’s leading online, end-to-end transaction platforms for commercial real estate. Since 2009, the company has sold more than $18 billion in commercial real estate. The company blends data-driven technology with industry expertise to accelerate close rates and streamline the entire transaction process. Ten-X Commercial and its parent company, Ten-X, are headquartered in Irvine and Silicon Valley, Calif., with offices in key markets nationwide. Investors in the company include Thomas H. Lee Partners, L.P., CapitalG (formerly Google Capital) and Stone Point Capital.