December 21, 2018
The fourth quarter is normally the busiest time of the year, with investors looking to close deals before year-end, but in 2018 deal activity appears to be coasting to the finish line. Research by Real Capital Analytics’ (RCA) shows preliminary volume figures for November suggest a slowdown of investment activity, but 2018 volume is still far enough ahead that the annual total should be higher than last year.
RCA’s Jim Costello writes, “The slowdown in the fourth quarter is more pronounced in the single asset market. The sale of individual assets fell at double-digit rates in October and November on a year-over-year basis, preliminary data shows. Still, because of the strength earlier in the year, 2018 activity for such deals is coming in at a pace 3% higher than that seen through November 2017.”
Interestingly, portfolio and entity-level transactions are shaping up to be an important driver of deal activity both for November and the year overall. Preliminary figures for November suggest a 26% year-over-year pace of growth in such megadeals, says RCA. On top of the 40% pace of growth in these deals in October, Q4 may see an overall lift in deal volume largely because of megadeals.
RCA’s Elizabeth Szep points out that U.S. commercial property prices rose 7% in November from a year earlier, logging a steady pace of increase consistent with the sustained investment sales growth in 2018 so far. RCA’s US National All-Property Index rose 0.6% from a month prior.
Into the year-end, industrial, CBD office and retail properties are all experiencing a positive bump in growth, notes Szep. “Annual price growth for each of these three types has accelerated for at least the past three months,” she wrote.
RCA reports apartment prices rose 9% year-over-year, a slower rate of increase than posted in the first half of 2018, but still the fastest rate of growth among the property types, tied with suburban offices. Suburban offices have posted the strongest acceleration in price growth so far this year; at the start of 2018 they were increasing at a 4.6% year-over-year pace.
With year-to-date 2018 deal volume already ahead of the level set through November 2017, it would take a catastrophic December for the 2018 total not to surpass 2017 levels, notes Costello.
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