Is it all too good to be true? According to recent record findings, data revealed in commercial real estate may be masking warning signs in the commercial property market. According to Real Capital Analytics, the U.S. commercial real estate market recently posted its second-best January ever in 2016, with $44.6 billion in transactions for that month alone. Data from the firm’s figures surveyed portfolios and properties of office complexes and income-producing apartment buildings valued at more than $2.5 million. In a report by Moody’s/RCA, price growth in the commercial real estate sector has begun to decelerate in major markets. It was revealed that prices went down 0.6 percent in major markets in January and have risen only 0.1 percent in the past three months.
The findings revealed that January’s number combined with the $73 billion in transactions for December delivers the commercial property market to its highest dollar total for any 60-day period ever. And although dollar number is up 12.7 percent from last year, the volume of transactions is down 7 percent from January 2015, notes the firm.
“It is the momentum issue that’s of concern,” Real Capital Analytics noted. “A sign of reduced liquidity and fewer transactions, that’s a bit of a caution flag. It’s still a huge number of deals that happened in in the month, but it’s a momentum issue that has people concerned.” According to the firm, there was also 42 percent tied up in portfolio or entity-level sales. The firm said that this is a situation where a very large capital source, often a global capital source, will come in and buy a whole slew of buildings at once. On the other hand, the sale of individual properties was down 18 percent.
Real Capital Analytics is optimistic for the U.S. market. “Compared to other parts of the developed world, we’re still the fastest growing, most stable, most secure location. Well-leased commercial real estate is going to act as a bond equivalent for these investors.” Gains of employment have also begun spreading to the sector this year. As well, the trend with suburban development continues to shape the landscape. According to the Emerging Trends 2016 report, 37 percent of millennials prefer to live in downtown areas of denser cities, most baby boomers prefer the suburbs. The report also found that generation Ys are following the baby boomers to suburbs during their child rearing years. Entrepreneurial businesses will also be viewed as spurring local communities.