IRVINE AND SILICON VALLEY, CALIF. – February 22, 2018 – Ten-X Commercial, the nation’s leading online, end-to-end transaction platform for commercial real estate, today released its February 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 commercial real estate pricing rose 0.1 percent in February, the index’s first gain after nine consecutive months of contraction. Even with February’s pricing uptick, the Ten-X CRE Nowcast now stands just 0.4 percent higher than a year ago, the smallest annual increase since the Nowcast’s inception.
“This slight increase is noteworthy because it occurs amid sharply rising interest rates and dramatic gyrations in stock prices, which real estate investors seem to have shrugged off to some degree,” said Ten-X Chief Economist Peter Muoio. “It is too soon to tell whether January represents a true inflection point, but after close to a year of monthly declines, February’s pricing performance is a welcome bounce-back for the industry.”
The overall CRE figures reflect mixed movements in the five property segments, with gains in industrial, apartment, and retail just enough to outstrip declines in office and hotel.
The Ten-X Industrial Nowcast posted the largest increase in February, with pricing rising by 1 percent. This reversed a January decline, and narrowed the segment’s year-over-year pricing decline to 3.3 percent. The strengthening of the industrial economy in recent months has given investors renewed confidence that demand will continue. Still, threats about tariffs and other trade barriers remain a risk for this segment. Industrial pricing rose across most geographic regions, with only the Southeast posting a modest monthly decline.
Like industrial, pricing in the apartment sector edged up in February, according to the Ten-X Apartment Nowcast, posting a 0.4 percent increase after seven consecutive months of contraction. In the past year, apartment prices have remained essentially flat, with pricing just 0.2 percent higher than a year ago. Notably, sales on the Ten-X platform, Google search trends and investor sentiment all trended upwards in February. This may be attributed to the fact that the recent wave of completions is easing and some investors are less worried about supply risk. Higher interest rates also have the potential to shift a modest amount of demand toward apartment rentals, as homeownership could become less affordable.
The Ten-X Retail Nowcast continues to chug upward, increasing 0.1 percent in February, even as the sector’s headwinds – the rise of e-commerce and shifting consumer spending preferences – remain in place. The index is now a solid 6.0 percent above year-ago levels, far outstripping the annual gains of any other segment. Nevertheless, the sector seems vulnerable to additional retail bankruptcies and store closings, especially if the U.S. economic expansion slows. Regionally, the retail sector’s pricing gains were concentrated only in the Northeast and West, while the rest of the country saw pricing declines.
The Ten-X Office Nowcast saw a 0.3 percent decline in February, as it continues to follow a saw-tooth pattern. Office pricing is essentially unchanged since early 2017, as fundamentals paint a mixed picture, and year-over-year gains are at a paltry 0.1 percent. Survey data showed investors are decidedly negative on cap rate trends in this segment and bidding on office assets was weaker on the Ten-X platform. All regions saw declines in February, except for the Southeast, which climbed to its highest mark on record.
Hotel pricing remains weak. The Ten-X Hotel Nowcast posted its seventh decline in ten months, falling 0.4 percent in February. Hotel pricing is now 0.9 percent lower than a year ago. Survey data is positive on the segment, perhaps fueled by the strength in domestic leisure and business travel. Still, Google search trends and auction data on the Ten-X platform remains mixed. On an annual basis, the Southwest, Southeast and Midwest are down sharply, while the two coasts remain positive from a year ago.
“Even with the modest pricing increase since January, February’s annual gains were the weakest on record,” said Muoio. “In the past year, only the much-maligned retail sector posted material pricing gains, while office and apartment saw little movement and industrial and hotel each moved backwards. While it was encouraging to see the CRE Nowcast end a nine-month streak of declines, only time will tell whether the real estate sector is able to regain its footing in this economic cycle.”
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.
About Ten-X Commercial
Ten-X Commercial is the nation’s leading online, end-to-end transaction platform for commercial real estate. Since 2009, the company has sold more than $18 billion in commercial real estate. The company blends data-driven technology with industry expertise to accelerate close rates and streamline the entire transaction process. Ten-X Commercial and its parent company, Ten-X, are headquartered in Irvine and Silicon Valley, Calif., with offices in key markets nationwide. Investors in the company include Thomas H. Lee Partners, L.P., CapitalG (formerly Google Capital) and Stone Point Capital.