CRE Costs Are Rising Whilst Transactions Proceed to Tumble

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Commercial real estate transactions declined again in the third quarter, according to Real Capital Analytics' latest issue of US Capital Trends.

Dollar volume decreased 57% year over year in the third quarter but increased 37% quarterly. RCA says that's a bigger increase than usual seasonal activity patterns.

At the same time the annual rate of US commercial real estate Price growth increased 1.4% in September. RCA said continued price increases in the apartment and industrial sectors offset the decline in retail and office prices.

House prices rose 0.6% from August to September and rose 6.7% year-over-year after seeing double-digit gains earlier in the year, according to the RCA. In contrast, CREXi reported that multi-family prices are per square foot fell 0.64% in September compared with the previous month. This decline is due to two consecutive months of more than 6% growth for apartment buildings and four consecutive months of compression of the cap rate.

Industrial, which was the most stable price index for property types, achieved medium growth rates of 7% per year, according to RCA. CREXi also saw growth, saying the price per square foot for industrial equipment was up 17.9% in September from the previous month.

According to RCA, retail prices were down 0.7% from August and fell 5.3% from September 2019. “This sector and hotels have suffered during the ongoing health crisis and could have bigger problems as the distress for commercial real estate loans mounts. ”According to the RCA.

According to CREXi, retail assets rose 7.95% in September.

Office prices barely moved in a month-on-month comparison, but fell by 1.5% year-on-year, according to the RCA.

According to RCA's US Capital Trends, office property sales were down 60% year over year in the third quarter. Apartment transactions made up the bulk of commercial transactions, although sales were down 51% year over year.

While there is a lot of money waiting for distressed assets, they only claimed 1% of the total market in the third quarter. According to the RCA, this proportion was higher for the difficult hotel and retail sectors. In the badly affected retail sector, distressed sales represented 3% of business volume. In hotels, another sector devastated by COVID-19, 9% of sales were due to distress.

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