IRVINE AND SILICON VALLEY, CALIF. – July 27, 2017 – Ten-X, the nation’s leading online real estate digital 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 indicate CRE pricing trends in real time, revealed that the commercial real estate sector continued its slump in July, with nationwide commercial pricing declining by 0.3 percent.
The decrease marks the third consecutive month of contraction for the index, which remains in the doldrums, as the market struggles to adjust to rising interest rates and a lack of clear direction in federal policy. Despite the prolonged slump, pricing across commercial real estate remains 8 percent higher than in July 2016.
“July marked yet another step back for commercial real estate prices, with higher borrowing costs and continued policy uncertainty contributing to this decline,” said Ten-X Chief Economist Peter Muoio. “Most property segments seem to be treading water for now, and transactional activity and pricing have both been fairly muted as investors await more clarity.”
The Nowcast once again points to a varied picture across commercial real estate’s five sectors. Most notable during July was the emerging weakness of the apartment sector, which declined by 1.4 percent – the segment’s first monthly decline since late 2015. Apartment had posted the strongest pricing gains of any CRE sector throughout the current cycle, despite weakening fundamentals in recent quarters due largely to an influx of supply. While the step back during July does not necessarily represent the beginning of a long-term decline, it does suggest that the sector is not invulnerable to wider market forces. The Southeast was the only U.S. region to see gains in apartment pricing, with the Nowcast recording a 0.5-percent uptick. The Midwest, meanwhile, saw a significant decline of 4.3 percent, which could be attributed, in part, to the health of the region’s single-family market. The Ten-X Apartment Nowcast currently sits 12.3 percent above its July 2016 level.
The Ten-X Industrial Nowcast dipped by 0.2 percent, continuing a saw-toothed trend that has been in place throughout the year. Despite this month’s decline, overall pricing is up 7.1 percent over the last year – due largely to a particularly weak showing during July 2016. The Southwest was the only geographic area to see pricing increase, with the region recording a 1.5-percent jump despite a prolonged slump in oil prices that appeared likely to drive down pricing.
The remaining CRE segments – hotel, retail and office – all posted marginal pricing increases in July, according to the Nowcast. Office edged up 0.1 percent amid stagnant fundamentals and limited rent increases. The sector is seeing stark regional differences. Many markets that have been hot are now seeing supply pick up, while others continue to flounder along with their struggling economies. Notably, the Northeast posted a strong pricing increase of 4 percent during July, while all other regions declined.
The beleaguered retail sector eked out a second consecutive month of gains, with pricing climbing 0.2 percent in July. Despite the slightly encouraging trend, the segment has seen an annual increase of just 6.2 percent, and has a fairly negative outlook moving forward. Regional patterns were mixed, with the West and Southeast emerging as the weakest during July.
Hotel posted a slight rebound after a 3-percent drop during June, recording a 0.2-percent increase in July. After a solid spring, pricing across the segment is now softening once again, and is now up a marginal 0.7 percent since July 2016. Regional patterns mirrored those in the apartment sector, with Hotel pricing weakness concentrated in the Midwest while the Southeast, Northeast and West posted slight gains.
“While the apartment market has at times seemed impervious to wider economic trends, July showed us that weakening fundamentals may finally be catching up with the sector,” Muoio stated. “With other segments still mired in slumps of their own, it may be telling that pricing during July was in clear decline in the apartment sector, where growth had previously appeared to be unstoppable.”
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 Commerci