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Commercial Real Estate Transaction Activity in Sharp Decline
Irvine, CA-based Ten-X’s Commercial Real Estate Capital Trends report revealed that investment activity decreased during Q1 2017, taking a step backward after two consecutive quarters of growth. Total deal volume dipped below $100 billion for the first time since early 2014.
Ten-X Chief Economist Peter Muoio said, “Uncertainty is always among the greatest threats to continued economic expansion and investment, and commercial real estate is currently facing a multitude of questions that threaten to shift segment and market fundamentals.”
Overall transaction volume fell 32% percent from the prior quarter to $90.9 billion, according to Real Capital Analytics, an 18% drop from Q1 2016 and 43% lower than its late 2015 peak. The decline was not unexpected, as investors have pulled back sharply since the November election due to higher financing rates and uncertainty surrounding future exit cap rates.
Other notable report findings include:
- Apartment sector posted a steep decline of 600 bps from prior quarter, though this sector continues to make up an outsized portion of deals
- Retail and industrial each saw respective shares of total volume increase
- Office and hotel sectors had modest declines in volume, falling 130 bps and 50 bps respectively
- Cap rates mirrored shifts in risk premiums, increasing in industrial, retail and hotel sectors, while apartment was the lone sector to see rates fall and office cap rates remained flat
- Total five-sector volume remains 16.2% above its historic 10-year average
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