Ten-X released its latest Commercial Real Estate (CRE) Nowcast. The monthly pricing index forecasts CRE pricing trends in real time, and revealed that commercial valuations rose by 0.8 percent during September. The figure represents a slowing pace of pricing growth across the five commercial real estate sectors, driven largely by declines in the hotel and retail sectors.
According to Ten-X, overall CRE valuations remain 6.7 percent higher than a year ago despite the contracting pricing for retail and hotel assets, following rapid growth in July and August.
“The commercial real estate space still shows a healthy upward pricing pattern, though the market has been unable to keep up with the trends we reported in August, when we saw increases across all five property segments,” Ten-X Senior Quantitative Strategist Chris Muoio said in the news release. “While a moderation in growth from the summer’s torrid pace was to be expected, the continued softening of the hotel and retail sectors, which we've been tracking all year, is worth monitoring for investors.”
After two stable months, the Ten-X Hotel Nowcast showed that prices contracted by 0.4 percent in September. Recently challenged by the popularity short-stay rental services such as Airbnb, sector pricing now has declined by more than 7 percent over the past year, and faces a new hurdle as traditional supply lands on the market. Retail pricing, meanwhile, declined by 0.1 percent, continuing a run of middling growth that began in mid-2015.
Pricing in the sector remains 6.3 percent higher than this time last year, but its annual growth rate is at its slowest pace since late 2014 and concerned investors appear to be hedging their bets by buying up commercial mortgage-backed security derivatives.
Helping to offset the declines in hotel and retail is the industrial sector, which posted a 1.8 percent increase in pricing in September – its second consecutive month of healthy growth, according to the Ten-X Industrial CRE Nowcast.
“The divergent trends in retail and industrial show one sector’s loss can be another’s gain,” Muoio said. “Despite a tepid global trade climate, industrial continues to thrive as consumers continue to turn away from traditional methods of shopping.”
Apartment pricing also continued a run of consistent gains in September, increasing 1.4 percent and now sitting 12 percent higher than the same period in 2015. The sector once again has harnessed the momentum it held through much of 2015, and investors appear to be looking past recent infusions of supply and relying on strong demographics that bode well for its future success.