Over the past 12 months, Ten-X's trade rate—measuring the frequency of properties changing hands on their platform—averaged just over 50%. However, this figure varied considerably by location. Top-performing markets, with trade rates in the 60-70% range, included Columbus, Boston, Philadelphia, Cleveland, and Detroit. In contrast, underperforming markets, with rates in the 30-40% range, included San Diego, Los Angeles, Dallas, and Saint Louis, with San Francisco trailing at a mere 25%.
But don't use this data to jump too quickly to conclusions about the Sunbelt markets.
Kevin Spellacy, regional vice president at Ten-X, noted that Sunbelt markets are underperforming compared to other regions in the country – but that may not be as telling as one might think. One significant factor is the substantial population migration seen in states like Texas and Florida. In these markets, property owners tend to be more patient about achieving their desired pricing, believing that their markets are thriving in the long term and willing to wait to meet pricing expectations.
This cannot be ascribed to the underperformance in Western markets, though, where there is higher pricing on a price-per-square-foot and cap rate basis. This elevated pricing often leads to negative leverage for deals that require financing, rendering them unfeasible under current debt market conditions.
These dynamics may shift as newer trends that Spellacy describes start to accelerate. There has been an increase in discussions with corporate clients regarding the divestment of non-core real estate assets in the coming year. Corporations are typically early movers in market shifts, and this trend may signal broader changes in the market.
Additionally, Ten-X has observed a notable uptick in investor interest over the past 90 days, with more investors exploring deals on their platform. This increase indicates a potential rise in investment activity, which is further supported by the average liquidity of potential buyers on the Ten-X platform, estimated at around $5.5 to $6 million per deal. While this liquidity does not guarantee deployment, it suggests a significant appetite for investment and available capital.
These trends, combined with the regional divergence in transaction activity, paint a complex picture of the current commercial real estate market. As the industry continues to navigate post-pandemic challenges and evolving economic conditions, it is evident that location and property type play crucial roles in determining market performance and investor behavior.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
