CRE Transaction Rise 16% in First Half of 2014
CHICAGO—You don’t have look far or very hard for an indicator that the commercial real estate industry is thriving. CMBS is on track for $100 billion in issuance this year; multifamily continues its momentum; crowdfunding is reaching levels unexpected by even its most ardent fans.
But one indicator – transaction activity – inarguably trumps them all. Here, too, though, it is clear that CRE is trending high.
"Transaction activity continues to be the highlight of this CRE recovery, with solid growth in both primary and secondary markets" writes Bob O’Brien, Deloitte’s Chicago-based global and US real estate services leader, in the company's recently-released"2015 Commercial Real Estate Outlook."
"In fact, capital availability is increasing competition as both domestic and international investors show significant interest in CRE as an asset class. Consequently, asset pricing continues to show sustained growth."
It is, in other words, a virtuous circle for the industry.
US CRE transaction volume grew 16.4% year over year in the first seven months of 2014 to $204.2 billion. This activity was driven primarily by REITs and international investors.
For the first half of 2014, REITs and cross-border investors transacted $16.5 billion and $7.8 billion, respectively, Deloitte said.
Scratching underneath those figures also reveals more details about where the industry is trending right now.
For example, it is not just publicly-traded REITs buying and selling assets now but also their non-traded counterparts. Further, secondary markets have seen a strong pick-up inactivity across property types, as investors seek opportunities in markets less competitive than the primary gateway markets.
Also, the hot asset class in terms of transaction growth was not multifamily but retail, which posted a 40% growth in property sales for the first seven months of the year. Companies are repositioning portfolios by divesting under-performing assets and reinvest the proceeds in updating existing centers to attract new tenants and improve customer traffic," Deloitte explains.
Apartment sales, by contrast, "seem to have cooled off a bit, being the only property to register a sales decline during the same period," it said.
Asset prices, not surprisingly, are moving in tandem with this activity; according to GreenStreet Advisors’ Commercial Property Price Index, they rose 6.2 % in the first eight months of 2014. Cap rate compression across property types continues to drive higher asset prices, Deloitte also says.
Expect more of the same in 2015, Deloitte concludes. "Overall, transaction activity will likely continue to rise in 2015 with improving fundamentals and easier capital availability," it says.
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