Deal volume in large capitalization markets has been declining for the past five quarters, as investors approached capital deployment more cautiously against steep price appreciation and the promise of rising interest rates. The issue was on display during the first quarter of this year, with sales volume totaling $94.8 billion, an 18 percent year-over-year decline, according to Real Capital Analytics (RCA).

In comparison, small cap markets posted a year of solid gains during 2016. However, the first quarter of 2017 brought a change in the trend line, with sales volume declining 4.4 percent, according to data from a survey of REALTORS® engaged in commercial real estate transactions. In addition, a smaller percentage of REALTORS® reported closing transactions—61.0 percent in the first quarter, compared with 69.0 percent the prior quarter—a sign of slowing activity. The trend was also mirrored in a smaller average transaction value for the quarter—$876,500.

sales vol

While investment volume declined, with tight inventories, prices in large cap markets appreciated. Based on Moody’s/RCA Commercial Property Price Index data, prices gained 7.0 percent during the first quarter. The gain came from strong appreciation in prices of apartment and office, which advanced 10.0 percent and 9.0 percent, respectively.  Prices for industrial properties increased 8 percent year-over-year, while retail properties recorded a 1.0 percent decline.

In comparison to top-tier markets, price growth also increased in small cap markets during the first quarter of 2017, based on REALTORS®’ information. Prices for commercial properties increased 7.2 percent compared with the first quarter of 2016. However, capitalization rates changes indicated a likely shift in investor risk preferences. Average national cap rates reached 7.5 percent in the first quarter, 30 basis points higher than the same period in 2016.

sales yoy

To access the latest Commercial Real Estate Market Trends report, visit: http://www.nar.realtor/research-and-statistics/commercial-real-estate-market-survey.

 


Source: Economy

Copyright NATIONAL ASSOCIATION OF REALTORS®. Reprinted with permission.


This Article Appears Courtesy of Steven Diadoo

Steven Diadoo, Licensed Realtor in MN with BRIDGE REALTY and best-selling author of 'Road to Success' with Jack Canfield (Chicken Soup for the Soul), Board Member at Bowling for Brains Non-Profit 501(c)3 (Event to benefit the American Brain Tumor Association), licensed Realtor with Bridge Realty, Seen on DIY TV, Create Channel and PBS. For help buying and/or selling a house, please call (952) 270-6141 or Click here.