IRVINE AND SILICON VALLEY, CALIF. – November 30, 2017 – Ten-X Commercial, 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 remained in the doldrums in November with nationwide commercial pricing edging down by 0.1 percent — the seventh consecutive month of contraction for the index.
The pricing gauge is now a meager 1.5 percent higher than its year-ago level, the weakest pace of growth in this cycle.
November pricing data suggests that investors are increasingly cautious about both commercial real estate fundamentals and property values one year after a presidential election that introduced major uncertainty to U.S. policy and prompted an increase in interest rates.
“The U.S. presidential election is a year behind us, but the events of intervening months have done nothing to alleviate investors’ wariness,” said Ten-X Chief Economist Peter Muoio. “Instead, the Ten-X CRE Nowcast’s annual growth rate continues to reach new lows. Pessimism about fundamentals, a policy environment in a constant state of flux, and impending interest rate hikes are all adversely affecting commercial real estate and the market’s outlook at this stage is wary.”
The Ten-X Hotel Nowcast edged down 0.5 percent from October, its fifth drop over seven months, leaving the index a negligible 0.1 percent higher than a year ago.
All three legs of hotel demand – consumer vacations, business travel and foreign travel to the US – have strengthened recently due to the strong labor market, improved confidence, and stronger growth abroad and a weaker dollar. Hotel development has also continued, especially in major markets, resulting in tepid room rate growth. The hurricane effect, which typically boosts hotel fundamentals in the wake of a storm, did not cause the anticipated increase in the Southwest or Southeast. Weakness was concentrated in both those regions, along with the Midwest.
The Ten-X Industrial Nowcast fell 1.1 percent in November, the sixth decline in seven months and resulting in an annual pricing drop of 3.2 percent. Industrial’s weak performance is particularly striking in light of the numerous demand drivers that have developed of late including e-commerce growth, demand from cloud computing centers and cannabis legalization as well as the continued health of traditional demand drivers. Industrial vacancies continue to decline to lows not seen in decades and supply remains relatively modest. The pricing slowdown in this environment likely indicates that investors simply believe pricing has gotten ahead of fundamentals and are unwilling to overpay to acquire coveted industrial facilities.
The apartment sector continued to weaken with the Ten-X Apartment Nowcast posting a 0.2-percent decline – its fifth straight monthly drop. With this decline, apartment pricing is now just 3.4 percent higher than a year ago – another new low for the current cycle. Pricing in the Northeast increased, though not enough to offset its sharp October drop, while all other regions saw pricing decline. Notably, the pricing drop in the West fell below its year-ago level, likely due to a supply glut in several major cities in the region.
The retail sector climbed again in November, up 0.6 percent month-over-month, its sixth consecutive monthly gain. This brings the segment’s annual pricing growth to 5.8 percent, the most impressive year-on-year performance among all five sectors. The sector’s weakening fundamentals, driven by e-retail competition and shifting consumer spending preferences, make this result particularly surprising.
The Ten-X Office Nowcast edged 0.5 percent higher in November. Ten-X Research notes that the office sector is largely divided into two classes of markets, each of which has its own struggles at this stage of the cycle. The struggling economic regions have continued to see limited growth, while stronger markets — which have performed well in recent years — are now beginning to struggle with the incoming supply that has been constructed in response to their strong fundamentals. The office segment is partiucalrly vulnerable to cyclical weakness, and at this late stage of the economic cycle, this will likely weigh on pricing.
“Amid the overall market malaise, several sectors have defied projections, including the industrial sector’s sudden pricing reversal and a retail segment that has seen an unexpected boost in recent months,” said Muoio. “Across the market overall, the November data confirms that commercial real estate investors remain wary.”
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 Auction.com, Ten-X Commercial and Ten-X Homes. To date, the company has sold 323,000+ residential and commercial properties totaling almost $53 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 Thomas H. Lee Partners, L.P. CapitalG (formerly Google Capital) and Stone Point Capital. For more information, visit Ten-X.com.