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Commercial Property Valuations Up In April, With Hotels Posting The Strongest Gains

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There has not been one month since the election of President Donald Trump that commercial real estate valuations rose collectively in all five property sectors. That changed in April.

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CRE pricing advanced 1% across the board last month, up from March’s mere 0.1% increase. This represents the industry’s strongest monthly gain since November thanks in part to sliding interest rates due to a slip in the 10-year Treasury and international uncertainty spurring robust activity in the U.S.

“I attribute the [past] flatness to an increase in rates after the election and a lot of re-evaluation and recalibration of deals — some pulled and some delayed,” Ten-X chief economist Peter Muoio said. “What’s interesting is whether [April’s performance] is a sort of first green shoot of spring, [and a sign] that we’re coming out of the fog.”

A Pop In Hotel Pricing

Hotel pricing rose the most in April. The sector has been the weakest link since November in terms of pricing gains, but last month that shifted as valuations advanced 1.3% month-to-month, breaking an 11-month streak of negative growth readings.

Ten-X attributes this to robust activity, strong fundamentals and low supply levels in the Southwest and Southeast, though Muoio said challenges in New York could put pressure on hotel valuations going forward.

When studying the regional Nowcast, Muoio said the Northeast was the only subregion that showed a decline in April — of which New York takes a big share.

Heavy supply in New York is the biggest culprit. Four thousand hotel rooms opened in Manhattan in 2016, and more than 5,800 are expected to open this year, followed by another 4,900 in 2018 and 4,200 in 2019. Room rates have already been plummeting, so the New York City hotel market is bracing for a few more years of choppy waters.

“New York has a lot going on with a lot of supply coming online and exposure to foreign travel,” Muoio said. “Since the election and [Trump’s] policies there’s been a general falloff in foreign bookings to the U.S., of which New York is a strong recipient.”