IRVINE AND SILICON VALLEY, CALIF. – March 29, 2018 – Ten-X Commercial, the nation’s leading online, end-to-end transaction platform for commercial real estate, today released its March 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 0.5 percent in March, the index’s second consecutive monthly gain. Despite the March pricing uptick, the Ten-X CRE Nowcast now stands a meager 0.7 percent higher than a year ago, just 30 bps above its historic low.
“After nine consecutive months of contraction, the pricing gains in February and March indicate that investor sentiment has begun to bounce back,” said Ten-X Chief Economist Peter Muoio. “While it is too soon to say how long this upward trajectory will last, it is encouraging that the market responded positively, even as the Federal Reserve confirmed another rate hike and equity markets roil with uncertainty.”
Gains in four of the five property segments, including in hotel, office, apartment and retail were enough to outweigh a 0.5 percent decline in the industrial segment.
The Ten-X Hotel Nowcast bounced back from two straight months of decline, climbing 1.6 percent in March, the strongest increase of any property segment. While hotel pricing had slipped below its year-ago figures in February, the strong performance was enough to push the index to 0.5 percent higher than a year ago. Survey data is generally positive on the segment with strong recent readings in domestic travel demand, occupancy rates and room rate growth. All regions saw pricing increases in March, except for the Southwest, which saw its tenth consecutive month of decline.
The Ten-X Office Nowcast continued its saw-tooth pattern, climbing 0.8 percent in March after a 0.3 percent decline in February. The segment’s year-over-year gains now stand at 1.3 percent and have only moved minimally since early 2017. The national stagnancy is reflective of two uninspiring regional market types: those that recovered strongly in this economic cycle and are now facing increased supply, and those that lack significant demand drivers entirely. While there is little indication that the office segment will break out of its fundamental funk this year, every regional submarket saw a pricing increase in March.
Pricing in the apartment sector edged up 0.2 percent in March, according to the Ten-X Apartment Nowcast, making it the second monthly increase after seven consecutive months of contraction. On the year, pricing fell 0.7 percent representing the first year-over-year decline for the apartment segment since the Nowcast’s inception. Apartment pricing grew in the Midwest and West regions in March, but contracted in the Northeast, Southeast and Southwest. While the segment has had trouble digesting its new supply, completions should begin to ease in the next few years and low single-family inventories should also transform some consumers from renters to buyers.
The Ten-X Retail Nowcast edged up yet again, increasing 0.2 percent in March despite the sector’s oft-repeated challenge of consumers’ move to online shopping. The index is now an impressive 6.5 percent above year-ago levels, an annual gain that far outpaces that of any other segment. The modest gain on the national level masked significant divergence between strong gains in the Northeast and a sharp decline in the Southwest, with the other three regions posting more modest changes.
The Ten-X Industrial Nowcast reversed its impressive February gain and posted a 0.5 percent decline in March. The segment’s year-over-year pricing decline deepened to 3.8 percent – the sixth consecutive month in which the Industrial Nowcast has failed to post an annual gain. The sector’s pricing declines come despite the e-retail tailwind that has driven major gains in both vacancies and rent conditions. However, while investor sentiment and Google search trends were mixed, transaction data was decidedly negative. The weak investor sentiment may be due in part, to trade-related uncertainty, as the the threat of tariffs could have an adverse impact on various uses for industrial property.
“A second consecutive month of pricing gains is a positive sign for the market, but we’re clearly looking at a commercial real estate environment that has lost significant steam from earlier in the cycle,” said Muoio. “Even as four of the five property sectors rose this month, office and industrial are behind their March 2017 figures, while hotel’s annual increase is fairly minimal. Even in the retail and office sectors, in which pricing has increased significantly in the past year, there still exists a sizable amount of risk.”
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.