IRVINE AND SILICON VALLEY, CALIF. – September 28, 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 September, with nationwide commercial pricing edging down by 0.1 percent — the fifth consecutive month of contraction for the index.
The slide comes amid divergent opinions among investors over the duration of the business cycle, a higher interest rate environment, and a lack of fundamentals improvement in many sectors. With this ongoing softness in the market, pricing across commercial real estate is just 4.4 percent higher than its year-ago level.
“The nowcast’s fifth consecutive monthly decline in September indicates the market has again failed to shake off its malaise, as a murky business cycle prognosis and tightening monetary policy continue to take their toll,” said Ten-X Chief Economist Peter Muoio. “The nowcast’s annual growth rate is at its lowest level since we introduced the index, and several CRE sectors are in similar slowdowns. While there is something of a varied picture across the five CRE segments, there is no denying the overall softening of commercial real estate pricing.”
Noteworthy during September was the weakness of the apartment sector, which declined by 0.3 percent – the segment’s third straight monthly decline after a strong run-up earlier this year. It is now just 7.7 percent higher than a year ago - the lowest year-over-year growth figure for the segment since summer 2016. This can be attributed to rising vacancies coupled with decelerating rent growth, which have combined to give investors pause. Geographically, the nowcast recorded a 2.8 percent drop in the Midwest, with the Northeast and West also seeing declines. The Southeast and Southwest eked out small gains.
The Ten-X Industrial Nowcast fell 1.6 percent and has now posted declines in four of the last five months. Although pricing is still up 1.3 percent from its year-ago level, this is the slowest annual growth the sector has seen since 2012. This month, the index was weighed down by a 6.5 percent decline in the Northeast, while the Midwest, West, and Southeast saw more modest declines. Despite the region’s poor showing, the Northeast’s precipitous drop may be an anamoly and skewed by one or two large deals. The Southwest was the lone region to record pricing gains, with the index increasing by 0.6 percent.
Office saw pricing remain flat in September, which puts its annual growth at 5.5 percent – the segment’s slowest growth rate since early 2016. Last month’s pricing increase for the Northeast proved to be an anomaly, as pricing in the region ticked lower this month. More noteworthy is the sharp pricing decline in the Southwest which is down 3.4 percent from the month prior. Modest growth in other regions, including 1.1 percent in the West, helped to offset those declines.
The retail sector eked out a fourth consecutive month of gains, climbing 0.4 percent in September. The segment has now seen an annual pricing increase of 6.7 percent. The Northeast region gave back the gain it saw last month, falling 1 percent. Pricing remained flat in the Southeast and Midwest, while the West and Southwest saw solid growth of 1.1 percent and 2 percent, respectively. It is likely that pricing gains in the segment are transitory and muted, as the headwinds of the retail sector, especially e-commerce’s challenge to brick-and-mortar stores, have not abated at all.
The Hotel Nowcast bounced in September, rising 0.9 percent - the largest gain of any sector. Still, the index is up just a meager 0.6 percent compared to year-ago figures, as hotel sector fundamentals remain weak. A 4.2 percent surge in Northeast pricing buoyed the national figure and masked declines in three out of five regions. While international tourism to gateway cities may be fueled by the dollar’s recent weakness, the sector is still likely to struggle with a heavy supply pipeline in many markets and the continued AirBnB effect.
“September data confirms the commercial real estate market remains in a turbulent state, especially as it can no longer rely on breakneck growth in the apartment sector to buoy pricing,” Muoio stated. “Until one or more segment of the industry can sustain consistent growth or investors align on the where the overall market is heading, it is likely that pricing will continue to drift.”
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.