Pricing Growth 'Remains on Track'

“Investors may be looking past nearer-term cyclical deterioration” in apartments and instead focusing on “the strong long-term social and demographic trends,” says Ten-X’s Peter Muoio.

IRVINE, CA—Commercial property valuations have posted their strongest monthly increase so far this year, according to the latest Ten-X Commercial Real Estate Nowcast, issued Thursday. Values increased by 1.9% in August even as deal volume slowed, for a 6.4% increase year over year. The report also shows increases across all property types for the first time since late 2015. “The recent string of monthly increases in commercial real estate valuations confirms that pricing remains on the upswing following the weakness seen earlier this year,” says Peter Muoio, chief economist at Ten-X. “The strength displayed across our nowcasts this summer is an important signal to real estate investors that despite the array of global challenges and the heightened uncertainty brought about by the US presidential election, commercial real estate’s pricing growth remains on track.” Although multifamily has been the most consistent gainer thus far in 2016, it’s office that led the way in August as it has for three consecutive months. The sector’s pricing climbed 5.8% from July and is up 13.3% from a year ago, even as fundamentals for office remain “tepid,” Muoio observes. Pricing on apartments rose 1.9% from a month and 8.7% Y-O-Y, according to Ten-X data. Although relevant Google search data—one of the metrics that Ten-X considers in preparing its nowcasts—showed some weakness for multifamily, deal pricing on the Ten-X platform was strong. “Investors may be looking past nearer term cyclical deterioration from increased development and focusing on the strong long-term social and demographic trends supporting this property segment,” says Muoio. Industrial pricing saw its first monthly gain since April, with a 1.8% increase over July pricing and 12.6% from the year-ago period. As with multifamily, fundamentals were solid for industrial in the second quarter. Although the hotel sector’s increase was more modest—0.1% over July—the fact that it occurs after a flat reading the month before suggests at least a temporary halt to pricing declines for lodging. However, Ten-X notes that hotel values remain well below the peak established this past October. Retail’s slow recovery continues, with pricing up 0.2% month-over-month and 6.5% Y-O-Y.