IRVINE AND SILICON VALLEY, CALIF. – January 3, 2018 – 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 ended 2017 on a down note. Nationwide, commercial pricing in December edged down 0.3 percent from November’s figures — the eighth consecutive month of contraction for the index. The pricing gauge is now just 1.0 percent higher than a year ago, the weakest appreciation pace in this cycle.
“As 2017 draws to a close, commercial real estate pricing has continued to weaken with year-over-year pricing growth now at its lowest point in the cycle,” said Ten-X Chief Economist Peter Muoio. “Despite positive economic news and a new tax law that should benefit CRE, investor sentiment has been quite weak, leading to a startling eighth straight month of pricing contraction for the sector.”
The Ten-X Retail Nowcast was one of two sectors to post a monthly gain, a surprising result given the ongoing challenges it faces from e-commerce and shifts in consumer spending preferences. Paced by 2.1-percent growth from the West region, the national index recorded a 0.4-percent rise in December, its seventh consecutive monthly gain. However, the segment’s annual pricing growth shrank to 4.3 percent. The Southwest, which saw a 0.7-percent decline in December, has seen robust annual growth of 10 percent, the strongest performance of any region.
The Ten-X Office Nowcast, which had seen gains in recent months despite weak fundamentals, dropped 1.6 percent in December. Office pricing is down 0.8 percent from a year ago, one of only two segments to post an annual pricing decline. The sector’s weakness was universal across all regions, encompassing markets that never recovered from the last recession’s job losses and markets where strong recovery drove new construction, resulting in increased supply pressuring vacancy rates. The Northeast, which boasts strong but cooling markets like New York and Boston, posted the strongest annual gain.
The formerly high-flying apartment sector continued to weaken, as it has since mid-2017. The Ten-X Apartment Nowcast posted a 0.3-percent decline – its sixth consecutive monthly drop – leaving apartment pricing just 2.6 percent higher than a year ago. With only the West region seeing growth in December, national annual pricing growth is now at its weakest level of this cycle.
The Ten-X Hotel Nowcast continues to bounce around with the index edging up 0.8 percent in December. Hotel pricing is now 2.0 percent higher than a year ago, its strongest annual reading since May. A range of factors including improving consumer and business travel indicators, a weaker dollar – which makes U.S. travel cheaper for foreigners – and improved economic conditions abroad, have all helped hotel pricing to plateau following acute weakness. That said, the threat of increased development means pricing is threading a course through conflicting supply-demand signals.
The Ten-X Industrial Nowcast recorded a 0.6-percent monthly decline in December and industrial pricing is down 3.5 percent compared to a year ago – the weakest annual pricing movement among all five sectors. The sector is enjoying strong fundamentals and is supported by traditional demand drivers, like industrial production and capital goods orders, as well as new sources of demand, including e-commerce growth, demand from cloud computing centers, and cannabis legalization. The new tax law could theoretically boost investment spending, further driving industrial demand. With supply picking up however, investors may be concerned about the speed with which industrial supply will enter the market and have seemingly begun to hedge their bets on the segment.
“The continued decline in December confirms that commercial real estate investors are wary going into the new year,” said Muoio. “Even segments like industrial and apartment, which seemed to have limitless potential just months ago, have seen marked pricing declines due to supply and other concerns. With pricing across all segments up just 1.0 percent in the past year, the question of whether pricing will pick up in 2018 or continue its sluggish performance remains to be seen.”
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 and Ten-X Commercial. 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.