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Wait, What? Retail Property Prices Up, Industrial Prices Down

The March Commercial Real Estate Nowcast published by Ten-X Commercial revealed prices in the troubled retail sector are rising, while prices for industrial properties are dropping.

The Grove, a retail property in Southern California. Retail property price gains have been healthier than expected, according to Ten-X.

Retail property prices edged up yet again for the month, increasing 0.2% in March despite the sector’s many challenges, according to Ten-X. The index is now 6.5% above year-ago levels, an annual gain that far outpaces that of any other segment.

The report did not offer reasons for the upward movement in retail property prices, though it did say that the modest monthly gain on the national level masked significant divergence between strong gains in the Northeast and a sharp decline in the Southwest, with the other three regions posting more modest changes.

The industrial sector reversed its February gain and posted a 0.5% pricing decline in March. Moreover, its year-over-year pricing decline deepened to 3.8%, representing the sixth consecutive month in which industrial pricing has failed to post an annual gain. The sector’s pricing declines come despite the e-commerce tailwind that has driven major gains in both vacancies and rent conditions. 

Overall, commercial real estate prices rose 0.5% in March, according to Ten-X Commercial. That is the second monthly gain, but despite the uptick, the index stands only 0.7% higher than a year ago, just 30 basis points above its historic low.

Hotel prices bounced back from two straight months of declines, rising 1.6% in March, the strongest monthly increase of the five major property segments. According to Ten-X, circumstances are generally positive for the segment, with strong recent readings in domestic travel demand, occupancy rates and room rate growth. 

Office prices climbed 0.8% in March after a 0.3% decline in February. The segment’s year-over-year gains now stand at 1.3%,  having only moved minimally since early 2017. While there is little indication that the office segment will break out of its funk this year, every regional submarket experienced a pricing increase in March, the report said.

Pricing in the apartment sector eked out a 0.2% gain in March, according to Ten-X, making it the second monthly increase after seven consecutive months of contraction. For the year, pricing fell 0.7%. While the segment has had trouble digesting its new supply, completions should begin to ease in the next few years.

“After nine consecutive months of contraction, the pricing gains in February and March indicate that investor sentiment has begun to bounce back,” Ten-X Chief Economist Peter Muoio said in a statement. “It is encouraging that the market responded positively, even as the Federal Reserve confirmed another rate hike and equity markets roil with uncertainty.”

The NowCast is based on data modeling developed by Google Chief Economist Hal Varian. Ten-X applies Varian’s ideas by combining publicly available and anonymous Google Trends data with its own proprietary transactional data to create a model for predicting commercial real estate activity. This data is implemented with input through the company’s partnership with Situs and its Real Estate Research Report.