CRE Nowcast

The Ten-X Commercial Real Estate Nowcast showed an uptick in pricing in April, benefitting from the slide in interest rates heading into the French Election.  After four months of stagnation, commercial real estate prices rose 1% in April, their strongest month of growth since the US presidential election. This brought commercial real estate prices 9.6% higher than their year ago level, their strongest rate of annual growth since the start of 2016. The Ten-X Nowcast reading is a crucial data point for CRE investors at this turbulent juncture since it provides a real time gauge of property prices using Google trends data, transaction on the Ten-X platform, and surveys of CRE market participants by Situs/RERC to monitor ongoing valuation developments.  Today’s nowcast clearly reveals that property prices are in a general lull as investors await more clarity on the economic and policy outlook.

The biggest surprise in the Nowcast was the hotel segment, which saw a pop in pricing.  The Ten-X Hotel Nowcast increased 1.3% in April, tied with the apartment sector for the strongest monthly growth.  More impressively however, prices are now 1% higher than a year ago, breaking a streak of 11 consecutive months with negative annual growth readings. The strength was driven by gains in the Southwest and Southeast, where markets are experiencing stronger fundamentals and lower supply pipelines. Pricing in the Northeast continued to decline, as New York City is likely acting as an anchor on the region’s performance.  The Northeast, and gateway markets in particular, continue to grapple with declining international tourism, as travel restrictions continue to mount under the new administration.

The apartment sector continues its relentless growth, as the Ten-X Apartment Nowcast increased 1.3% in April, on par with its growth in the prior two months.  Apartment pricing is now 15.1% higher than a year ago.  Despite our concerns that tight cap rate spreads and less robust gains in NOI could mean apartment properties are fully valued, investors continue to have a voracious appetite for the segment.  Growth was strongest in the Midwest and West this month, with the Southwest being the notable laggard.  This likely has to do with the slowdown in economic growth being seen in energy exposed metros over the last year, as oil prices have remained low.

The Ten-X Office Nowcast showed growth of 1.1% in April, snapping a streak of four months with middling to no gains.  Office pricing now stands 22.4% higher than a year ago according to the index, its strongest annual growth since 2014.  The labor market is robust and remains supportive of office absorption and fundamentals.  The office sector saw growth in all regions of the country, though growth was strongest in the Southwest.

The retail and industrial sectors were the laggards in April, with their respective Nowcast indices rising just 0.6% and 0.7% respectively in the month.  The Ten-X Industrial Nowcast indicates pricing is just 5.4% higher than a year ago, while the Retail Nowcast is just 4.8% above its year ago level.  This is the slowest annual growth for the retail sector since the end of 2014.  Sentiment around the retail segment was decidedly poor, as bankruptcies and store closures continue to dominate the headlines.  The Industrial sector meanwhile saw price appreciation in all regions except the Southwest, which dragged the sector’s growth down.  This is once again owing to slower growth in the energy and industrial sector owing to lower oil prices.