Commercial Real Estate is Making Great Strides
Forecasts show that commercial real estate is making great strides. As far as sales activity, there were strong gains for September 2014. Heavily influenced by core transactions is the value-weighted index that advanced 1.9 percent in September, and 3.3 percent for the third quarter 2014.
In looking at the prerecession high, this index is now 2.8 percent higher, while continuing to make impressive gains. Influenced by smaller non-core deals is the equal-weighted US Composite Index that jumped 1.3 percent in September and 4.2 percent for the third quarter of 2014.
Property Sales Expansion
One particular area seeing fast expansion is property sales. Year-to-date through third quarter 2014 is composite pair volume of $67.3 billion. From the same period last year, this is a remarkable 23 percent increase. Then, for repeat sales of distressed asset transactions in September of this year, the numbers dropped to single digits.
For all major property sectors annual price gains were reported. The three primary segments of commercial real estate being office, industrial, and retail, numbers in September of this year hit 21.2 percent, 14.4 percent, and 11.4 percent respectively compared to earlier highs. The fastest recovering sector is multi-family, hitting at 1 percent above its previous peak.
In indicated by CoStar, over the 12-month period ending in September 2014, there were price gains for all property types, which indicates that pricing for commercial real estate is experiencing good recovery.
The strongest annual gain among all four types of property is retail, which over the 12-month period ending September 2014 saw a 15 percent rise in the US Retail Index. Although the Prime Retail Metros Index grew by 8.2 percent in the same period, the overall index outperformed significantly, this as risk tolerance increased for investors, but also after secondary markets were priced out of prime markets.
Now within 3 percent of its peak pricing in 2007 is Prime Retail. In the meantime, the US Retail Index fell below its 2007 peak by 11.4 percent.
The market has been seeing relatively strong growth in demand for industrial properties as well. Triggered by strong fundamentals within most markets coupled with asset qualities, the US Industrial Index continued to grow. For this particular property type, average quarterly growth was 3.4 percent higher than the 12-month period ending bySeptember 2014.
Specific to the Multifamily Index, it surpassed its earlier prerecession peak in the third quarter of this year. Currently, this index is hitting 1 percent higher than the peak in 2007. Then, for the third quarter in 2014 alone, pricing for multifamily grew 4.5 percent. At 14.6 percent above levels in 2007 is the Prime Multifamily Metros Index, surpassing the prior March 2013 peak.
Supporting indication of growth for commercial real estate is a report released by Real Capital Analytics and Moody’s, stating that prices peak-to-peak has come full circle in less than seven years, primarily because of easy money that prompted investors to struggle for a commercial lending boom coupled with higher-yield assets.
Although commercial real estate still has a ways to go, as revealed by recent reports, all four segments are experiencing growth. According to experts, growth is expected to continue.