If all of the major sectors save one saw transaction volume rise during Q2, then the same could be said about risk premiums. Only industrial posted a decline in risk premiums—down 20 basis points from Q1 and 65 bps year over year—due in large measure to vacancy rates that are below pre-recession levels.

The hotel sector saw the sharpest rise in risk premiums of the major sectors, gaining 50 bps from the previous quarter to reach an all-time peak of 6.8%. Ten-X says this elevated level reflects the sector's current secular and cyclical challenges. Office and apartment risk premiums, which are down on a Y-O-Y basis, both edged up 20 bps compared to Q1 levels. Retail, facing the dual threat of e-commerce and a cyclical downturn, saw its Q2 risk premiums shoot past their 10-year average, vaulting 40 bps from the previous quarter.

Cap rates rates fell in three of the five sectors—office, industrial and multifamily—during Q2. Industrial cap rates took the steepest plunge during the quarter, down 50 bps to 6.7%, and the sector now trails its historical average by the widest gap of all the sectors.

Conversely, the declines for office and apartment cap rates were negligible, bringing them to 6.7% and 6%, respectively. Only hotel and retail saw increases, to 9% and 6.6%, respectively. The former's cap rates stand at their highest level in over a year.

IRVINE, CA—Even as commercial property pricing has declined, investment activity expanded in the second quarter, Ten-X said Wednesday. The firm's latest Commercial Real Estate Volume & Pricing Trends report shows that transaction volume jumped 15.6% from Q1 to $105 billion, according to Real Capital Analytics data, with the increase driven by growth in all sectors save retail. Although this represents a return to quarterly levels above the $100-billion mark, deal volume remains far below its cyclical peak, and is now 4.5% lower than a year ago.

“After hitting a post-election pause button, the industry seems to have digested and even shrugged off a flurry of policy announcements, concluding that many of the previously touted reforms will not be implemented,” says Peter Muoio, chief economist with Ten-X. “Instead, commercial real estate investors are assuming the US economy will continue to slowly and steadily expand in coming quarters. Even the expectation that the Federal Reserve will continue to raise interest rates has been accepted without significant upsetting of the apple cart.”

Ten-X notes that CRE has benefited from a trifecta of factors: the abatement of policy uncertainty, the stabilization of interest rates and the resilience of the labor market. That being said, policy risk has not disappeared completely, given that a single political party controls both the legislative and executive branches of government.

Following a swift rise in late 2016, 10-year Treasury rates slipped to 2.19% percent despite the Fed's decision to raise rates during its July meeting. With interest rates in the US looking favorably high compared with those abroad and a Fed that has signaled an intention to raise rates at least twice more in 2017, the outlook for foreign capital inflows looks promising.

If all of the major sectors save one saw transaction volume rise during Q2, then the same could be said about risk premiums. Only industrial posted a decline in risk premiums—down 20 basis points from Q1 and 65 bps year over year—due in large measure to vacancy rates that are below pre-recession levels.

The hotel sector saw the sharpest rise in risk premiums of the major sectors, gaining 50 bps from the previous quarter to reach an all-time peak of 6.8%. Ten-X says this elevated level reflects the sector's current secular and cyclical challenges. Office and apartment risk premiums, which are down on a Y-O-Y basis, both edged up 20 bps compared to Q1 levels. Retail, facing the dual threat of e-commerce and a cyclical downturn, saw its Q2 risk premiums shoot past their 10-year average, vaulting 40 bps from the previous quarter.

Cap rates rates fell in three of the five sectors—office, industrial and multifamily—during Q2. Industrial cap rates took the steepest plunge during the quarter, down 50 bps to 6.7%, and the sector now trails its historical average by the widest gap of all the sectors.

Conversely, the declines for office and apartment cap rates were negligible, bringing them to 6.7% and 6%, respectively. Only hotel and retail saw increases, to 9% and 6.6%, respectively. The former's cap rates stand at their highest level in over a year.