IRVINE AND SILICON VALLEY, CALIF. – Aug. 31, 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 indicate CRE pricing trends in real time, revealed that the commercial real estate sector continued its slump in August, with nationwide commercial pricing edging down by 0.1 percent — the fourth consecutive month of contraction for the index.
The protracted slide comes as market participants continue to grapple with a higher interest rate environment, policy uncertainty, and concern that the business cycle is nearing its end. With this ongoing softness in the market, pricing across commercial real estate is just 5.8 percent higher than the August 2016 level.
“The Nowcast’s fourth consecutive monthly decline in August indicates that the market remains in its malaise as investors sort through late cycle uncertainty and the prospect of further increases in interest rates,” said Ten-X Chief Economist Peter Muoio.
The Nowcast again points to a varied picture across commercial real estate’s five segments. Noteworthy during August was the weakness of the apartment sector, which declined by 0.6 percent – the segment’s second straight monthly decline after a strong run-up earlier this year. The sector’s weakening fundamentals can be largely attributed to an influx of supply, particularly in large markets like New York City, San Francisco and Miami. Geographically, the Nowcast recorded a steep 3.6-percent drop in the Midwest, with smaller declines in the Southeast and Southwest. The Ten-X Apartment Nowcast is currently up 9.6 percent from the year-ago period, its first dip into the single digits since August 2016.
The hotel sector more than gave back its July gain, dropping 1.4 percent in August and returning to the downward trend recorded in May and June. The index is down 0.8 percent compared to the year-ago figures, as investors remain sour on hotel properties. Despite recent data showing demand is staying ahead of a burgeoning supply pipeline, hotel pricing weakness varied starkly across regional lines. The Southeast registered a whopping 6.2 percent drop compared to July, while the Northeast emerged as the only region to post a gain.
The Ten-X Industrial Nowcast fell 0.4 percent — its third drop in four months. Overall pricing is still up from its year-ago level, but the 4.8 percent year-over-year gain represents the index’s weakest performance since mid-2012. The strength of underlying factors that underpin industrial fundamentals — including e-commerce, cloud computing, and the increased legalization of cannabis — was not enough to offset macro factors weighing down on the real estate industry at large, including higher interest rates, concern about potential disruptions to trade, and fears that the business cycle is nearing its end.
The remaining two CRE segments, retail and office, each posted pricing increases in August, according to the Nowcast.
The retail sector eked out a third consecutive month of gains, with pricing climbing 0.2 percent in August. The segment has now seen an annual increase of 6.1 percent. The monthly increase was driven largely by a 1.9 percent jump in the Northeast, which masked declines in the Midwest, West and Southwest. The sector’s headwinds, especially e-commerce’s challenge to brick-and-mortar stores, continue to keep it from capturing any significant momentum.
Office showed the biggest gain of any sector during August, jumping 1.6 percent. The strong performance is entirely attributed to a 7.7-percent surge in the Northeast – a puzzling leap, as most markets in that region have not benefited from strong fundamentals. All other regions either recorded declines or were unchanged from July. On a national level, office fundamentals have not improved, with vacancies remaining essentially unchanged since early 2016.
“August data is indicative of the commercial real estate market’s current fragile state, as pricing is no longer being buoyed by the previously breakneck growth of the apartment sector,” Muoio stated. “Until investors find more stable footing or another segment of the industry begins to harness significant momentum, it is likely to continue its present struggles.”
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 300,000+ residential and commercial properties totaling over $50 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.