IRVINE AND SILICON VALLEY, CALIF. – Dec. 22, 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 nationwide commercial valuations rose by 0.3 percent during December, representing the industry’s slowest month-over-month increase since June.
According to the Nowcast, the retail sector continued a surprising rebound that began in earnest last month, rising by 1.4 percent during December. The sector is typically boosted during the busy holiday shopping season, although it remains hampered by e-retail competition and seemingly lasting shifts in consumer spending behavior. The acceleration of wages across the country may be providing a much-needed boost to the sector, however, and may play a key role in its ability to overcome the strong secular headwinds it will continue to face in 2017. Thanks to its strong finish to the year, overall retail pricing is now up 8.3 percent since the end of 2015.
Other property segments, however, experienced either softened or negative growth as the year draws to a close. Research indicates the market is paralleling the bond price declines that began after last month’s election, even as equities have risen. Indicators underlying the nowcasts suggest investors are treading carefully, reassessing future cap rates as they gauge valuations.
“As a new president prepares to take office, we are experiencing unusual uncertainty. This appears to be contributing to an overall softening of the market, including slowdowns in such previously stronger sectors as industrial and multifamily,” stated Ten-X Chief Economist Peter Muoio. “Investors are taking a wait-and-see approach toward many of their holdings, and this is holding back overall pricing growth.”
Growth in the office sector slowed significantly to 0.4 percent in December, according to the Ten-X Office CRE Nowcast, down from 3.7 percent the month prior. Pricing is now up 17.6 percent year over year, although stark regional differences are beginning to emerge across the market. Nowcast data showed increases in the Northeast and Southwest, but decreases in every other area of the country. All regions continue to show positive year-over-year growth, and the sector may see an added boost as the effect of low oil prices begins to recede and demand picks up in the new year.
Multifamily properties also showed positive, if tepid, growth during December, as pricing jumped 0.4 percent during the month. Despite the slight slowdown, the sector flourished during 2016, as very low vacancies and healthy rent growth helped it outpace all other areas of the market, according to Ten-X Research. Continued wage growth may prove a further boon to landlords in 2017, while rising mortgage rates could force would-be buyers to rent instead. The Nowcast indicates the regional pricing situation is brightest at present in the Midwest, where a relative dearth of supply additions should help improve the market for landlords.
The remaining CRE sectors, hotel and industrial, each saw pricing contract during the final month of the year. Industrial pricing fell by 0.4 percent, Ten-X research indicates, taking a step back after four months of incredibly healthy gains. Bolstered by the rise of e-commerce and cloud computing, which have sent demand for warehouses and distribution centers soaring, pricing across the sector is now up 7.6 percent over the last year. The market remains strong across all regions, with the Southwest posting the weakest annual gain at a still impressive 5.4 percent.
Finally, hotel pricing continued its free fall by declining 0.7 percent during December, according to the Ten-X Hotel CRE Nowcast. The sector posted declines in every month of 2016, and finished the year down a discouraging 6.6 percent. Its prolonged slump has been spurred by a storm of falling demand and increasing supply, including that introduced by non-traditional competitors such as Airbnb, although Ten-X Research suggests it may be on the verge of recovery. The U.S. hospitality market has historically been closely tied to the overall economy, giving investors a glimmer of hope that an uptick in growth during 2017 could help it overcome its significant hurdles. The Southeast represented a rare bright spot for the sector in December, posting a gain of 3.9 percent, although all other regions saw pricing decline.
“Even though the market as a whole took a step back during December, commercial real estate remains generally healthy across the country,” said Muoio. “Despite a number of challenges posed by technology and other factors, a growing economy continues to make most segments of the industry an inviting choice for investors.”
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 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.