Commercial real estate in the US reached a total deal volume of $537 billion in 2018, the second-largest on record.
Transaction platform Ten-X Commercial has published its Winter CRE Volume & Pricing Trends report and says that the final quarter of 2018 saw 7.5% year-over-year transaction volume growth across all sectors of the CRE market – retail, industrial, multifamily, office and hotel.
The momentum continued in the first quarter of 2019 and continued to benefit from increased investment due within the Opportunity Zones. Real Capital says that 14% of 2018 sale activity was in the zones.
Pricing growth remains flat
However, the quest for deals is not driving prices.
"The current economic expansion in the US, now the second longest in recent history, eased investor concerns and fueled CRE growth throughout 2018. However, this is not translating into further CRE pricing growth," said Ten-X Chief Economist Peter Muoio. "The pricing climate remained stagnant in the early months of 2019, as it was throughout all of last year."
The exception to the stagnant pricing growth is the office market where pricing saw a 5% increase.
Ten-X's latest nowcast showed multifamily as having the weakest pricing growth. Most recently, pricing declined 0.4% in February, which brought annual growth down to 1.3%. The nowcast also showed that pricing in the retail sector continued to slow, with annual growth remaining just 1.3% – its lowest level in this cycle.
Cap rates slipped
With the exception of industrial which was flat, cap rates for CRE slipped back a little in Q4 2018.
"Cap rate spread compression offset rising interest rates in the latter months of 2018, and the beginning of the retreat in interest rates in December further removed upward pressure on cap rates," said Muoio. "At this point increasing cap rates is less of a concern then it had been, with treasuries falling."
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