January 25, 2019
New research by Real Capital Analytics (RCA) shows U.S. commercial real estate prices slipped in December 2018 to the most subdued annual growth rate since 2012. The US National All Property Index rose 6.2% from a year prior, down from the 8.5% growth seen at the start of 2018, according to the latest RCA CPPI summary report
RCA’s Elizabeth Szep writes, “Monthly price gains also edged lower. Prices rose 0.3% in December from November, slower than the 0.5% average monthly rate for the first 11 months of the year. Across the property types, prices sit 26% above their peak prior to the Global Financial Crisis. However, when taking inflation into account, growth is more modest at 4% above those 2007 highs.”
She points out that annual price growth in the six major metros registered a slowed 2.8% YOY gain, while growth in non-major locations came in at a 7.6% rate. Growth in several major metro locales has been flat-to-declining in 2018, and that has placed a major drag on national growth among property types.
The strongest property type in December was apartments, with price growth of 8.9% YOY, though it slowed from the double-digit pace set at the start of 2018. Increases have been driven by gains in secondary and tertiary markets since 2016.
Suburban office was the surprise of 2018, registering year-end growth second only to apartments, at 8.2% YOY, a figure nearly double the rate this sector registered at the end of 2017.
Industrial properties logged strong growth for the year – up 7.9%, as investors continue to flock to the sector to buy their position in the national supply chain. The volume of industrial property sales in 2018 was greater than any year since Real Capital Analytics began tracking property markets.
CBD office prices have been shaky since the start of 2017, and rounded out 2018 at nearly flat growth of 0.4% YOY. Most of the six major metros are registering some softening in their central office areas, and investors have clearly felt priced out of these locales for some time, opting instead to invest in suburban areas, notes RCA’s Szep.
Retail had a blockbuster year for M&A activity, but price growth remained stagnant at 2% YOY since August.
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