IRVINE AND SILICON VALLEY, CALIF. – Feb. 22, 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 grew by just 0.2 percent during February, showing modest growth after remaining flat in January. Pricing across commercial real estate has now risen 8.5 percent over the last 12 months, although the strong growth the industry enjoyed in 2016 has flattened considerably over the last three months.
According to the Nowcast, the apartment sector once again recorded the strongest growth among all five CRE sectors, as pricing gained 1.4 percent in February. The sector has been a consistent standout of pricing strength, and is now up a stunning 16.6 percent over the past year. Multifamily fundamentals remain strong despite a significant pickup in development, as rents continue to grow and vacancies are holding steady at just over 4 percent. While most regions remain extremely healthy, the onslaught of new supply has begun to have an effect in the Northeast and West, where large metropolises such as New York City and San Francisco are beginning to see rents flatten after years of explosive growth.
“After a lengthy period of robust growth, pricing across commercial real estate has entered a period of lethargy during the last three months,” said Ten-X Chief Economist Peter Muoio. “While property valuations did tick up slightly, even the standout apartment market has begun to show signs of weakening in major cities, where a huge infusion of supply appears to have finally caught up with demand.”
Both office and industrial pricing showed little growth during February, posting increases of 0.2 percent and 0.4 percent, respectively. The modest gains signaled a rebound for the office sector after two consecutive months of decline. Overall office pricing is now up 22 percent over the past year, which is the largest increase of any sector, although that is largely attributable to its very weak Nowcast values in early 2016, when the sector underwent a several-month slide. The weak point for office pricing lies in the Southwest, where persistently low oil prices have put a drag on the large Houston market. With oil prices rising and approaching $50 per barrel, however, fundamentals may soon begin to stabilize, making office assets in these markets increasingly attractive to investors. The growth in industrial also represented a reversal, coming on the heels of price contractions during December and January. The sector is now up 5 percent year over year, with pricing fairly even across all regions.
Each of the two remaining CRE segments, hotel and retail, saw pricing levels contract during January. The Ten-X Retail Nowcast revealed that pricing fell by 0.5 percent, a second consecutive month of decline. While the Retail Nowcast now stands 6.2 percent above its year-ago level, the recent picture reveals little movement in pricing over the past few months. Deal data from the Ten-X platform and Google results were largely negative during the month, although investor surveys showed slightly more optimism about the segment’s prospects.
After holding flat in January, the hotel sector resumed its longer-term pricing decline, as the Ten-X Hotel CRE Nowcast fell 0.8 percent in February and is now down 4.9 percent over the last year. The sector has been in free fall since peaking in late 2015, losing 10 percent of its pricing value over that time. The hospitality industry faces a myriad of challenges, including a strong supply pipeline and competition from accommodation sharing services such as Airbnb, causing investors to remain very bearish on cap rate trends, according to the Situs/RERC surveys.
“With a recent rise in interest rates and the new administration in Washington bringing the potential of radical policy changes to the fore, many investors are adopting a more conservative approach that may be contributing to the slowdown,” Muoio stated. “While February represented a small step in the right direction, the industry will need to count on increased confidence from investors to regain its momentum.”
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.