IRVINE AND SILICON VALLEY, CALIF. – Oct. 20, 2016 – Ten-X, the nation’s leading online real estate transaction marketplace, has released its latest Commercial Real Estate (CRE) Nowcast. The monthly pricing index, which combines Google Trends data, Ten-X’s proprietary transaction data, and investor surveys to forecast CRE pricing trends in real time, revealed that commercial valuations rose by one percent during October. This continues the robust growth trend for the office, industrial, and apartment sectors. Meanwhile, shifts in consumer behavior have slowed the retail sector and hotel pricing has fallen sharply amid supply concerns.
According to Ten-X Research, overall CRE valuations are now 6.9 percent higher than a year ago, despite growth running at roughly half the growth rate seen in 2015.
“While unable to match the brisk pace of growth set last year, 2016 has seen more moderate, but healthy growth for commercial real estate following the weakness earlier in the year,” stated Ten-X Chief Economist Peter Muoio. “While other sectors have continued to thrive, major shifts in consumer behavior have taken a toll on the the retail sector, while the hotel sector continues to languish as supply constrains occupancies and Revenue per Available Room (RevPAR), driving down pricing.”
Leading the trio of flourishing sectors is multifamily, where the Ten-X Nowcast indicates pricing grew 1.8 percent from September. Rents have continued to climb despite an increase in development and stagnating vacancy rates, creating a strong backdrop for investors and pricing, which rose14 percent from its level one year ago. That marks the highest annual growth rate that the sector has seen since summer 2015, and the robust outlook in Situs/RERC survey data indicate that its surge is likely to continue in the months to come.
An increasingly healthy labor market has also helped push the office sector to new heights, jumping 1.5 percent in October, according to the Ten-X Office CRE Nowcast. Pricing across the sector rose 14 percent over the last year, its strongest rate of growth since mid-2014. Relevant Google search trends in October, along with increasingly hearty economic indicators, continue to paint a rosy picture for the market moving forward.
The Ten-X Industrial CRE Nowcast also showed a thriving sector, with pricing rising 1.5 percent during October and just under 13 percent year-over-year. The growth rate lags behind its late 2015 pace, but remains solid in the face of formidable headwinds stemming from a tenuous global trade climate. The rise of e-commerce continues to fuel demand for warehouses, distribution and data storage spaces, helping the sector to weather other adverse conditions and keeping pricing patterns poised for continued improvement.
Many of the same shifts continue to hamper the retail sector, according to the Ten-X Retail CRE Nowcast. Online-based retail is increasingly encroaching on market share previously dominated by bricks and mortar retailers, and a movement for increased wages has made many large restaurant chains wary of expansion – all of which is translating to tepid absorption, high vacancies, and weak rents. Overall pricing in the sector increased just 0.7 percent in October and 6.5 percent over the last year, representing its slowest pace since the close of 2014.
No area of commercial real estate has fared worse recently, however, than hospitality. Pricing in the sector fell 0.3 percent in October, continuing an outright decline that has seen pricing fall more than 8 percent over the last year – the largest year-over-year decline since Ten-X began compiling the Nowcast. The sector’s misfortunes are fueled by both a surge in traditional supply and a rise in online-based companies, specifically peer-to-peer marketplaces like Airbnb. This supply dynamic has constrained occupancies and RevPAR, and creates a worrying picture going forward should demand fall with a turn in the economic cycle.
“The increased prevalence of e-commerce has really inhibited growth in retail fundamentals, while the hotel sector is grappling with supply expansion,” said Muoio. “Investors have taken note of the discouraging fundamentals and it is starting to seriously affect real estate pricing across both sectors.”
About the Ten-X CRE Nowcast
The Ten-X CRE Nowcast is a price index covering the entire U.S. commercial market, including individual price trends for each major market sector – office, multifamily, retail, industrial and hotel. It is based on data modeling developed by Google Chief Economist Hal Varian, who defines “nowcasting” as “contemporaneous forecasting” – the ability to predict what is happening as it occurs. Ten-X applies Varian’s theories by combining publicly available and anonymous Google Trends data with its own proprietary transactional data to create a model for accurately predicting current commercial real estate activity. This data is supplemented with “real human” input through the company’s partnership with Situs and their Real Estate Research Report (RERC).
Ten-X issues its CRE Nowcast monthly after combining transactional data, related online search activity indicating purchase intent and investor survey results. The company runs multiple versions of the Nowcast model and layers in additional variables every day to improve its accuracy in predicting pricing trends across CRE sectors in key U.S. markets. Future iterations will include regional, local and individual asset-based price indicators. By analyzing current market conditions as opposed to only historical data, Ten-X is able to provide more relevant and timely insight to real estate investors, economists and government entities alike.
Ten-X is the nation’s leading online real estate transaction marketplace and the parent to Ten-X Homes, Ten-X Commercial and Auction.com. To date, the company has sold 244,000+ residential and commercial properties totaling more than $41 billion. Leveraging desktop and mobile technology, Ten-X allows people to safely and easily complete real estate transactions entirely online. Ten-X is headquartered in Irvine and Silicon Valley, Calif., and has offices in key markets nationwide. Investors in the company include Google Capital and Stone Point Capital. For more information, visit Ten-X.com.