November Ten-X CRE Nowcast Shows Growth in Four of Five U.S. CRE Sectors

Hotel sector experiences another pricing contraction, facing evolving consumer demand and flood of supply

IRVINE AND SILICON VALLEY, CALIF.Nov. 29, 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 1.5 percent during November, representing a modest acceleration in price growth after several months of tepid expansion. According to Ten-X Research, overall CRE valuations are now 8 percent higher than a year ago – its strongest annual growth since February of this year.

According to the Nowcast, the office, industrial and apartment sectors continued their healthy growth during the month, while the lagging retail enjoyed accelerated gains despite concerns about the impact of e-commerce on brick-and-mortar retail centers. The hotel sector, however, continues to contract, due largely to changes in consumer behavior and a surge of supply into the market.

“With the exception of the hotel sector, it’s been an encouraging month for commercial real estate pricing, thanks to a boost in investor confidence as broad economic indicators continue to point upward,” stated Ten-X Chief Economist Peter Muoio. “In particular, pricing in the office and apartment sectors have benefited from continued healthy demand and rent growth, reflecting an economy that is creating jobs and strengthening wages.”

Retail pricing rose by 1.3 percent during November, a rebound fueled largely by richer Situs survey data showing cautious optimism from investors. The uptick comes as welcome news for a sector that has been struggling to cope with the ascent of online-based retailers, which are accounting for an increasingly large share of sales. The sector has failed to post consecutive months of more than 1 percent growth since mid-2015, but overall pricing in the sector is still 7.4 percent higher than a year ago.

Growth in the office sector was robust during November with a 3.7 percent gain in pricing,  according to the Ten-X Office CRE Nowcast. The sector is bolstered by an increasingly healthy labor market, and prices are now up 17.4 percent over the last year, representing its strongest pace since summer 2014. The progress has been evident in Google search trends, which included a decline in “unemployment rate” queries during November, and Situs data indicates investors are bullish on cap rates throughout the sector.

Multifamily properties continued to show strong momentum in November, according to Ten-X Research, gaining 1.1 percent for the month. The flourishing sector was buoyed by Situs survey data that showed higher anticipated valuations as vacancies remain low and rents continue to rise. Overall apartment pricing has increased  a robust 16 percent over the last year.

Rounding out the last of the thriving sectors is industrial, which rode richer auction results and encouraging Situs survey data to post an all-time high for the fourth consecutive month. The Ten-X Industrial CRE Nowcast indicated pricing increased 1.8 percent in November, and its year-over-year growth of 11.7 percent remains encouragingly high. Investors understandably remain bullish on the sector, as e-commerce companies and cloud computing continue to fuel demand for warehouses and distribution centers.

The sole sector that failed to record positive growth during the month was hotel, which remains in a free fall brought on by falling demand and a surge in supply, including that introduced by non-traditional competitors such as Airbnb. Pricing has now fallen to its March 2015 level as valuations nationally have been contracting for six consecutive months, and are down 8.5 percent since November 2015 – the worst year-over-year decline in the history of the Nowcast.

“A myriad of factors, including the growth of both traditional supply and online vacation rentals, continue to plague hotels by driving up vacancies and shrinking revenues,” said Muoio. “The weak fundamentals have become a persistent reality in the industry, and the sector’s prospects for investors appear to remain bleak for both the short and long-term.”

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.

About Ten-X

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 260,000+ residential and commercial properties totaling more than $43 billion. Leveraging desktop and mobile technology, Ten-X allows people to safely and easily complete real estate transactions online. Ten-X is headquartered in Irvine and Silicon Valley, Calif., and has offices in key markets nationwide. Investors in the company include CapitalG (formerly Google Capital) and Stone Point Capital. For more information, visit Ten-X.com.

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