Uncertainty in CRE market weakens activity

by Steve Randall28 Feb 2018

Commercial real estate transaction volume was down 0.5% in the fourth quarter of 2017 compared to the third, to a total of $117.4 billion.

Data from Real Capital Analytics from the latest CRE Volume and Pricing Trends Report from Ten-X reveals that a $6.7 billion drop in deal volume in the industrial sector was the largest drag on overall volume.

Compared to the same period of a year earlier, 2017’s fourth-quarter investment activity plunged by 13.2%, while the annual figured dropped a more modest 6.9% to $445.2 billion.

"Uncertainty around tax reform-related policy undeniably weighed on deal volume late last year, but the legislation that eventually passed is expected to be beneficial to the real estate industry," said Ten-X Chief Economist Peter Muoio.

Deal volume continued to recover from a low at the start of 2017 but remained well below the cyclical peak.

Office and apartment sectors gained by $6.2 billion and $1.2 billion respectively compared to Q3. Apartments took a 37.1% share of CRE transactions in the quarter, its highest level on record.

What’s ahead for 2018?
Property valuations are now up just 0.4% year-over-year as of February, according to the Ten-X All Property Nowcast, to mark the weakest year-over-year gain for the index in its seven year history. Month-to-month, the Nowcast edged up by 0.1% in February — the index's first increase in 10 months.

"The main question on everyone's minds now is whether the delayed closings and optimism about the new tax regime will be enough to offset other headwinds and fuel deal volume growth in the first quarter of 2018 and beyond,” added Muoio. “The run up in interest rates since the start of the year is a potential downdraft on deal closings as financing costs increase and cap rate expectations change."

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