RCA Insights

Net Investors for 2017 Coming Into View

By on December 14th, 2017

The fourth quarter rush is upon us, with new deals announced each day. Most everyone in our industry is busy with holiday parties and wrapping up year-end deals in addition to presents. Despite the rush, total U.S. deal activity is likely to be down for 2017 relative to 2016.

For the year through November, deal volume is down 9% compared to the same period in 2016. Preliminary data suggests a 35% year-over-year decline for the month of November. From where the market is at today, we would need to see deal activity total $100 billion in December for 2017 to equal the volume seen in 2016. Every client we talk with is busy finishing up deals, but they are not $100-billion-a-month busy. The strongest December ever was in 2015 when the market saw deal volume of $75 billion.

Still, investors are hungry for the yield opportunities in commercial real estate. Acquisition activity is a challenge for many investors given the cyclically high prices, but there are other ways for capital to enter the sector: if you cannot buy it, build it.

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Construction is an issue we will be exploring more in 2018 as we incorporate this form of investment into our capital flows analysis. REITs, in particular, have been on a net investment trend throughout 2017 with their sale of existing properties totaling less than their new investments. However, this net investment has, on the margin, depended on capital committed to new construction. Without these new assets, the REIT pace of acquisition would barely be ahead of their pace of disposition.

Institutional investors, by contrast, are facing difficulty putting capital to work in the current market. These investors are buying new assets, but selling far more, and their pace of new construction is nowhere near enough to offset their disposition activity.

Next week Real Capital Analytics will publish the final edition of US Capital Trends in 2017. This edition includes our take on a number of defining influences for the market in 2018. 

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.