"The commercial real estate space still shows a healthy upward pricing pattern, though the market has been unable to keep up with the trends we reported in August, when we saw increases across all five property segments," said Ten-X Senior Quantitative Strategist Chris Muoio. "While a moderation in growth from the summer's torrid pace was to be expected, the continued softening of the hotel and retail sectors – which we've been tracking all year – is worth monitoring for investors."
After two stable months, the Ten-X Hotel Nowcast showed that prices contracted by 0.4 percent in September. Recently challenged by the popularity short-stay rental services like Airbnb, sector pricing has now declined by more than 7 percent over the past year, and faces a new hurdle as a glut of traditional supply lands on the market. Retail pricing, meanwhile, declined by 0.1 percent, continuing a run of middling growth that began in mid-2015. Pricing in the sector remains 6.3 percent higher than this time last year, but its annual growth rate is at its slowest pace since late 2014 and concerned investors appear to be hedging their bets by buying up commercial mortgage-backed security derivatives.
Helping to offset the declines in hotel and retail is the industrial sector, which posted a 1.8 percent increase in pricing in September – its second consecutive month of healthy growth, according to the Ten-X Industrial CRE Nowcast. Investors remain bullish on the sector, as pricing has recovered from a spring swoon and is now at an all-time high. Much of the its growth may be directly related to retail's decline, with a boom in e-commerce driving demand for warehouses and distribution centers.
"The divergent trends in retail and industrial show one sector's loss can be another's gain," said Muoio. "Despite a tepid global trade climate, industrial continues to thrive as consumers continue to turn away from traditional methods of shopping."
Apartment pricing also continued a run of consistent gains in September, increasing 1.4 percent and now sitting 12 percent higher than the same period in 2015. The sector has once again harnessed the momentum it held through much of 2015, and investors appear to be looking past recent infusions of supply and relying on strong demographics that bode well for its future success.
The Ten-X Office CRE Nowcast showed tempered growth in the office market, which increased 1.2 percent in September. Though the mark is relatively modest when compared with the sector's sharp increases over the summer, but pricing is now 13.2 percent higher than a year ago and has reached a new all-time peak. Ten-X Research notes that the gains can be attributed to a continuously solid labor market – evidenced by encouraging Google search trends around unemployment – which bodes well for pricing patterns in the nearterm.
About the Ten-X CRE Nowcast
The Ten-X CRE Nowcast is a price index covering the entire U.S. commercial market, including individual price trends for each major market sector – office, multifamily, retail, industrial and hotel. It is based on data modeling developed by Google Chief Economist Hal Varian, who defines "nowcasting" as "contemporaneous forecasting" – the ability to predict what is happening as it occurs. Ten-X applies Varian's theories by combining publicly available and anonymous Google Trends data with its own proprietary transactional data to create a model for accurately predicting current commercial real estate activity. This data is supplemented with "real human" input through the company's partnership with Situs and their Real Estate Research Report (RERC).
Ten-X issues its CRE Nowcast monthly after combining transactional data, related online search activity indicating purchase intent and investor survey results. The company runs multiple versions of the Nowcast model and layers in additional variables every day to improve its accuracy in predicting pricing trends across CRE sectors in key U.S. markets. Future iterations will include regional, local and individual asset-based price indicators. By analyzing current market conditions as opposed to only historical data, Ten-X is able to provide more relevant and timely insight to real estate investors, economists and government entities alike.
Ten-X is the nation's leading online real estate transaction marketplace and the parent to Ten-X Homes, Ten-X Commercial and Auction.com. To date, the company has sold 244,000+ residential and commercial properties totaling more than $41 billion. Leveraging desktop and mobile technology, Ten-X allows people to safely and easily complete real estate transactions entirely online. Ten-X is headquartered in Irvine and Silicon Valley, Calif., and has offices in key markets nationwide. Investors in the company include Google Capital and Stone Point Capital. For more information, visit Ten-X.com.
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