Peter Muoio is the chief economist for Ten-X.
Investment volumes overall are trending lower this year compared to 2018. According to a new report from Ten-X Commercial, second quarter sales volumes increased over the sluggish first quarter; however, overall, investment volumes are down over last year. For experts, the trend isn't a surprise. 2018 was marked by an increase in merger-and-acquisition activity, which helped to drive substantial increases in year-over-year investment sales.
"Last year was so backed up by merger and acquisition activity, so the 2018 numbers were really supercharged," Peter Muoio, chief economist at Ten-X Commercial, tells GlobeSt.com. "It wasn't surprising to us that in 2019, coming off of that merger and acquisition activity, the numbers would be lower. From an overview perspective, the numbers are too far off of where they were before the M-and-A activity. They are at a high level, and it only looks odd compared to the second half of 2018."
While investment volumes have slowed, pricing has remained flat since 2017. "Pricing is the real story," says Muoio. "We have plateaued at a high level, and there are some slight differences between asset classes, but overall, pricing hit its peak in 2017 and has been treading water since. I think there is a combination that is keeping this equilibrium. We are well into the longest economic expansion in modern history, and buyers and sellers are wondering when it is going to end. It is human nature."
Multifamily is the standout asset class. It has seen stronger pricing across markets. In the second quarter, office assets also had a minor increase in pricing. "Apartments are on a bit of an upward trend. Nothing too dramatic, but more so than what we are seeing in some of the other sectors over an extended period of time," says Muoio. "If you look at the office index, there is the uptick in the most recent quarter, but overall it is still sitting at its plateau level and below its previous peak." On the flip side, hotels was the worst performing asset in the second quarter.
The plateau in pricing is largely driven by the length of the cycle and concern over another recession. "Buyers are looking at product with half an eye on a potential downturn," adds Muoio. "I think that is an overarching thing. Then, when the yield curve inverted, there were heightened concerns that there would be a cyclical downturn in the near future. The degree to uncertainty and dangerous signals of things ahead have kept a lid on pricing."
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Kelsi Maree Borland
