Office and Industrial Sales Hold Steady as Overall CRE Sales Drift Lower
Investors continued to buy less commercial real estate in both the second quarter and the first half of 2017 compared to the same periods a year ago, a trend that started in 2016 as steady fundamentals that have resulted in generally robust occupancies and rental rate gains have boosted valuations across most property types.
However, CRE investment sales still are running about 10 percent above the historical sales volume average over the past 10 years, according to preliminary U.S. investment sales data collected by CoStar’s nationwide research team. In the second quarter, preliminary volume in the commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – fell to $106.7 billion compared with $129.2 billion in second-quarter 2016.
This CoStar report on national and Philadelphia commercial properties is being offered through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
The lodging property sector saw the biggest decline in the first half of the year compared with hotel property sales in the same period in 2016, including a significant drop in the second quarter from year-prior totals. Retail and multifamily assets among U.S. and Philadelphia commercial real estate properties also posted sales volume declines of more than 20 percent in the first six-month period of 2017.
The drop-off in U.S. apartment transaction volume from previous peak levels in the U.S. and Philadelphia commercial real estate markets is consistent with slowing rent growth and the market’s perception of oversupply, particularly at the top of the multifamily market, noted CoStar research strategist John Affleck.
Therefore, even as buyers and sellers have continued to benefit from low interest rates, the trading volume among all types of commercial property led to the record-shattering pace of the last two years. With interest rates beginning to trend upward, the low-financing advantage enjoyed by property investors related to national and Philadelphia commercial real estate listings is expected to gradually diminish.
“Higher interest rates have investors reevaluating commercial real estate’s core appeal this cycle: a wide spread in a low-yield world,” Affleck added. “The maturity of the economic cycle and the new administration also raise uncertainty.”
While industrial sales volume in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – declined by double digits in the second quarter, the warehouse and light industrial market ended the first half of this year with the smallest decline among the major property types.
Conversely, office sales volume among U.S. and Philadelphia commercial real estate listings was roughly even in the second quarter of 2017 compared with the same period a year earlier, and was down only slightly in the first half compared to the first two quarters of last year and down by an even lower percentage for the trailing four-quarter period ending June 30, 2017.
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