IRVINE AND SILICON VALLEY, CALIF. – Jan. 26, 2017 – 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 remained flat during January – the first time the industry has failed to grow on a monthly basis since February 2016. Pricing across commercial real estate remained 8.1 percent higher over the last 12 months, though it has now posted consecutive months of lackluster performance after a strong 2016.
According to the Nowcast, apartment was the only segment of commercial real estate to show pricing growth during January, recording an increase of 0.8 percent. The sector is now up 16.2 percent over the past year, its strongest annual gain since mid 2014. Its consistently solid performance is reflective of stable demand from renters across the country, though Ten-X Research indicates that supply additions may increase vacancies and slow overall growth in many major markets in the near term. The sector’s long-term prospects appear strong thanks to a strong labor market and higher mortgage rates, which should support apartment demand and help shield investors from downside risk. All regions except the Southeast posted positive growth during January, with the Midwest turning in a particularly strong performance.
Hotel, meanwhile, posted flat pricing for January, according to the Ten-X Hotel CRE Nowcast – a moral victory after four straight months of decline. The hospitality industry continues to face an abundance of challenges, reflected in the prolonged slump that has now depressed pricing 5.4 percent over the last year. While the sector boasts healthy operating conditions, including high occupancy levels and room rates, it continues to be dogged by trepidation over its future, given the strong dollar and competition from accommodation sharing services such as Airbnb. Hotels in the Southeast region remain a major bright spot for the sector, posting pricing gains of 4.3% in January, backing up a 3.9% monthly gain in December.
The three remaining segments, however, each saw pricing contract to begin 2017. Research indicates that investors are proceeding with more caution amid a tight cap rate environment, while operating fundamentals across the sectors generally have less room for continued improvement.
“While commercial real estate remains healthy overall, a sense of uncertainty has crept into the market over the last two months,” said Ten-X Chief Economist Peter Muoio. “The multifamily sector continues to see pricing growth month after month, but other property segments are being hampered by investors wary of a market that appears to be tightening.”
After leading all sectors in growth during December, retail returned to the bottom of the pack by declining 0.4 percent, according to the Ten-X Retail CRE Nowcast. Research indicates the reversal represents a correction following the busy holiday shopping season, though pricing across the sector is up 7.6 percent year over year. The decline during January was driven largely by weak performance in the Northeast region, where pricing declined nearly 5 percent after an explosive end to 2016. The sector fared better in other portions of the country, as prices actually increased in the West, Southwest and Southeast.
Office sector prices decreased 0.3 percent in January, according to the Ten-X Office CRE Nowcast, the second consecutive month of decline. Pricing is still up an impressive 18.5 percent year over year – the highest annual increase of any sector - although a closer look reveals major divergences along regional lines. The overall decline was driven primarily by the Northeast and Southwest, where pricing declined by more than 3 percent, while all other regions showed increases. The Southeast, which boasts some of the strongest long-run demographic trends in the U.S., saw office pricing grow 2.5% in January.
The Ten-X Industrial CRE Nowcast showed a slight decline of 0.2 percent for industrial properties in January. Similar to office, the industrial sector’s fortunes vary widely across the country. The Midwest and West regions are seeing the fastest price gains on a year-over-year basis, with growth in excess of 7 percent, while other regions – including the oil-exposed Southwest – are seeing more tepid gains. A number of technological developments continue to bode well for the sector’s future, including the rise of cloud computing and e-retail, both of which have increased demand for industrial spaces.
“January proved to be a challenging month for most commercial real estate sectors, whether due to natural correction following the holiday shopping season, or more long-term headwinds such as those facing the hospitality industry,” Muoio stated. “However, with a resilient national economy and continued uncertainty around the world, we can expect the real estate market to retain its strength for the foreseeable future."
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.