CRE Prices Continue Their K-Shaped Recovery
While pricing in the retail and hospitality sectors continue to slide, apartment and industrial are posting gains.
Commercial real estate prices continue to nudge along, or not, depending on their asset class. Their journey reflects a larger economic concept made popular in this recession: the K-shaped recovery, meaning that different parts of the economy are improving at different rates. While pricing in the retail and hospitality sectors continue to slide, apartment and industrial are posting gains, according to the RCA CPPI.
Pricing in the office sector sits between these two groups. Namely, for October, the US National All-Property Index rose 3.6% from a year ago, the apartment index rose 7.2% and the industrial index 8.5%. Retail prices were down 5.2% from a year prior. The office sector continued to fall at about a 1% annual rate, with suburban offices leading that slide, falling 1.6% year-over-year in October.
Pricing has been difficult to establish during the pandemic in large part because transactions have been lower and in some part because expectations between buyers and sellers have remained far apart.
Buyers and sellers are apart on many asset types, especially value-add, according to Chris Ludeman, global president of capital markets at CBRE. “Uncertainty about how to underwrite net operating income will remain until the pandemic is under control. Cap rates have remained relatively stable and in fact have gone down for the best industrial and multifamily assets,” he told GlobeSt.com in an earlier interview.
More recently, though, more transactions have been coming to market and there are signs of a thaw in the bid-ask gap.
After a stalemate between buyers and sellers earlier in the year, the gap in pricing expectations has narrowed, according to RCA’s US Capital Trends.
There is now no buyer-seller gap in expectations in the industrial sectors, where deal volume is back to a normal level, though still down.
In retail, the buyer and seller expectations gap continues to widen as deal volume sits at near-record lows. According to RCA, deal activity in the hotel sector is also at “abnormally” low levels with falling prices. Still, those prices aren’t at a place that will pull buyers off the sidelines yet.