IRVINE AND SILICON VALLEY, CALIF. – May 25, 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 pricing declined by 0.1 percent during May, reversing course after a healthy 2 percent spike in April. The reversal signals a return to the flattening of the market that persisted following November’s presidential election. Pricing across commercial real estate is now 10.2 percent higher than in May 2016 – just below the peak of 10.6 percent annual growth achieved the month prior.
“After a strong April signaled a potential rebound, May represented a clear step back for commercial real estate pricing,” said Ten-X Chief Economist Peter Muoio. “While the apartment and office sectors continued to post increases, the remainder of the market sunk back into the slump that began following last year’s presidential election.”
According to the Nowcast, the retail sector suffered the biggest decline during May, with pricing contracting 1.2 percent. While the segment saw a healthy gain of 3.6 percent last month, that appears to be an outlier, as pricing has now declined during four of the last five months. This downward trajectory to begin 2017 has cooled year-over-year Nowcast growth to just 6 percent. Its struggles can be attributed in part to a spate of negative media coverage following high-profile store closings and downsizings amid e-commerce’s continued encroachment on brick-and-mortar retail sales. The Northeast, which is struggling with flagging demographics and slowly recovering housing markets, saw a particularly severe decline in May. The Southwest saw the strongest growth, as it continues to capitalize on strong population growth and surging housing markets.
The apartment sector, meanwhile, continued its relentless growth by gaining 0.8 percent in May, per the Ten-X Apartment Nowcast. The segment has now posted 18 consecutive months of growth, and pricing is up 15.2 percent in the last 12 months. Despite tight cap rate spreads and slowing NOI gains – typically indicators that apartment properties are fully valued – investors continue to flock to the sector. The Northeast boasted the strongest apartment pricing growth during May, significantly outpacing all other regions.
Office pricing grew by 0.3 percent in May, joining apartment as the only sectors to post increases, according to the Nowcast. The sector has now jumped 22.3 percent over the last year, thanks largely to a robust labor market that has supported office absorption and fundamentals. The Southwest – which was the only region to post gains or remain steady across all five sectors - emerged as a standout by posting the largest office pricing increases for the second consecutive month.
The hotel and industrial sectors both posted declines during May, according to the Nowcast, continuing their recent struggles. Industrial saw a dip of 0.6 percent, concentrated largely in the Midwest and Northeast, and is now just 5.5 percent above its year-ago level. Hotel, meanwhile, saw pricing shrink by 0.2 percent, and has gained a meager 2.6 percent since May 2016. Investors are particularly concerned about a large influx of hotel supply coming to major gateway markets, which are already seeing international tourism decline due to a strong U.S. dollar and political rhetoric regarding travel restrictions.
“May proved a perfect example of today’s variegated commercial real estate landscape, highlighted by Apartment’s continued run-up in pricing and the ongoing uninspired results from the Hotel and Retail sectors,” Muoio stated. “As uncertainty continues to hover around much of the market, we are unlikely to see the across-the-board growth needed to lift it out of its current slump in the near 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.
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 292,000+ residential and commercial properties totaling almost $48 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.