RCA Insights

Here Is Why the US Looks Like a Hung Market in April

By on May 11th, 2017

 

Deal activity into April suggests that the commercial property investment market in the U.S. is still hung. Preliminary estimates indicate another high double-digit percentage decrease in deal volume versus a year ago, but with prices that are generally flat.

The headline figures on cap rates may seem to defy this notion that pricing is flat. Average office cap rates are up 20 bps from last October, for instance. There has, however, been growing office deal volume in the higher cap rate Non-Major Metros even as deal volume falls in the low cap rate 6 Major Metros.

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This shift in deal activity to markets that are not priced as aggressively helps to explain the falling deal volume overall. Buyers and sellers are simply too far apart on pricing expectations to see deal volume grow at the rapid pace seen two years back.

All property sectors posted YOY declines in deal volume for April, though the office sector had the shallowest decline. Also the sharp declines in the mid/highrise segments of the apartment sector seem to be moderating.

Next week Real Capital Analytics will publish the new edition of US Capital Trends. This edition examines deal volume and price trends for April.

Jim Costello

Jim Costello

Senior Vice President
jcostello@rcanalytics.com

Jim Costello has worked in the CRE space on issues of urban economics since 1990, including a 20-year stint at Torto Wheaton Research. Jim expanded the reach of the Torto Wheaton Research team developing forecasts of global market fundamentals. He also developed approaches to pair the forecast results with frameworks to answer investor questions on asset values and relative investment opportunities.

In the aftermath of the Global Financial Crisis, Jim provided advice to the Treasury Department and helped educate these professionals on commercial real estate performance. Jim is a member of the Commercial Board of Governors of the Mortgage Bankers Administration, where he helps policy makers understand the commercial real estate industry.

Jim is expanding the capabilities of the Real Capital Analytics team on issues of real estate market dynamics. Jim has a master’s degree in economics and is a member of the Counselors of Real Estate.