IRVINE AND SILICON VALLEY, CALIF. – June 29, 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 Commercial’s proprietary transaction data, and investor surveys to forecast CRE pricing trends in real time, revealed that the commercial real-estate sector continued to flounder in June, with nationwide commercial pricing declining by 0.3 percent.
The index has now contracted for two straight months, as pricing continues to be depressed by a mix of rising interest rates, policy uncertainty and mounting questions surrounding the current economic cycle’s sustainability. Despite this two-month decline, pricing across commercial real estate remains 9.5 percent higher than in June 2016.
“While commercial real estate pricing appeared to be rebounding earlier this year, recent declines show a market struggling to cope with various economic uncertainties,” said Ten-X Chief Economist Peter Muoio. “As questions about policy, geopolitical turbulence and the long-term durability of the economic cycle continue to mount, real time insights into pricing shifts become all the more valuable to astute investors.”
According to the Nowcast, both the apartment and retail sectors posted healthy increases of 0.9 percent in June. Despite the identical gains, however, the two segments remain headed in starkly different directions. The jump in retail pricing represents a partial recovery from a sharp downdraft in May, when the Nowcast measured a decline of 1.2 percent. The sector continues to struggle to fend off an unrelenting foe in the form of e-commerce, a threat which was recently underscored by Whole Foods’ purchase by Amazon. The Ten-X Retail Nowcast now sits just 6.6 percent above its year-ago level, the second weakest showing among all property segments.
The apartment sector, meanwhile, continues to record significant increases month after month despite a supply pipeline that appears likely to push vacancies upward in the coming quarters. Investors remain confident in the sector thanks to still-low availability rates, consistently rising rents and promising long-term demographics. Most of the sector’s gains during June were concentrated in the Midwest, where incoming supply additions are lightest and mulitfamily fundamentals are strongest. All other regions saw either middling gains or declines.
Much of the overall CRE market’s weakness during June was concentrated in the hotel and office segments, though they too have divergent underlying stories. The Ten-X Hotel Nowcast declined by 3 percent during June, and has now reverted back to first-quarter levels after a brief period of growth. The sector has shown persistent weakness dating back to late 2015, and is continuing to suffer from a decline in international travel, competition from upstarts such as Airbnb and oversupply in many key markets. The Southwest emerged as an outlier during June, posting a marginal 0.1 percent downtick while all other regions saw a significant drop.
The Ten-X Office Nowcast posted a more moderate decline, with pricing in the sector falling by 0.4 percent. The decrease erased solid gains from May, and continued the sector’s recent pattern of incremental growth interspersed with losses. The setback during June was due in large part to a 4.7 percent decline in the Southwest, where Houston and other energy-dependent cities continue to suffer from low oil prices. The rest of the national market remains choppy, as hot office markets prepare for an influx of new supply that may threaten their success, while uninspiring job growth in other cities continues to harm prospects for investors. While the sector has posted a solid 19.3 percent increase in pricing over the last 12 months, workstyle and technological changes continue to shrink the need for office space. The overall state of the office sector remains tepid, with risks varying widely across U.S. markets.
The Ten-X Industrial Nowcast continued its sideward movement during June, eking out a 0.1 percent increase in pricing. The sector has now remained essentially flat for several months – a suprising development given the healthy demand from e-retail outfits in search of distribution space, as well as a flood of traditional brick-and-mortar retailers eager to break into e-commerce. While the segment has failed to see significant gains as of late, its prospects remain bright, as a rise in cloud computing and the expansion of the cannabis industry into new states should continue to fuel demand.
“While only three of five sectors showed pricing declines in June, the month served as a testament to the current vulnerability of the overall CRE market,” Muoio stated. “While apartment and retail both posted solid gains, each sector is facing headwinds that could threaten their growth in the future. As unpredictability in Washington, D.C. and around the globe continues to give investors pause, the persistent slump is now threatening to affect sectors that previously appeared unassailable.”
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.