By Jim Costello on January 27th, 2017
U.S. commercial property transaction volume fell 11% in 2016, the new edition of US Capital Trends shows. The level of activity is still elevated historically and marks 2016 as the third strongest year on record. A preliminary run of the Moody’s/RCA CPPI shows prices climbed 9% in 2016.
A 30% YOY decline in portfolio and entity-level transactions explains the 2016 volume drop, with single asset sales almost unchanged. For Q4’16 single asset volume dipped 9% YOY and megadeal activity fell 40% YOY, though this drop is more reflective of an unusually strong Q4’15.
The apartment sector led transaction activity in 2016, both for total volume and growth. No property type saw more deal volume than the apartment sector. In years past, the office sector was normally in the lead and for two years in a row now, the apartment sector has taken the lead.
Pricing got off to a shaky start in 2016. A credit market swoon generated new investor caution with worries over peak pricing, and also limited the availability of CMBS debt. CPPI growth dipped to single digits early in the year before rebounding into Q4’16. Cap rates edged up slightly in Q4’16, as the 10yr UST yield surged following the U.S. presidential election. Some cap rate moves may be noise but others are a signal; still, these movements are less than the shift in the 10yr UST.
While deal volume was down for 2016 overall, in 22 of the 101 largest markets new record high volume levels were seen. Dallas posted record high transaction activity which helped nudge it ahead of Chicago in the market rankings to take the #3 slot. Manhattan activity fell, but stays comfortably in the #1 slot ahead of Los Angeles.
Investors moved towards risk in 2016. Risk can be found either in secondary and tertiary markets, moving away from core deals into value-add and development related transactions, or through both. Transaction volume for core deals in the Non-Major Metros grew at a 2% pace in 2016 while falling 9% in the 6 Major Metros. Deal volume fell for riskier investment styles.
If you are a current RCA subscriber log into your account to download the 2016 Year in Review Big Picture report and reports for the individual property types.