After a booming 2015, the pace of commercial transactions in the first quarter of this year dropped and failed to keep up, according to the National Association of Realtors®’ Commercial Real Estate Outlook: 2016.
Large commercial real estate deals plunged 20 percent year-over-year, totaling $111 billion in the first quarter, according to Real Capital Analytics.
Sales volume may have dropped but prices continued to rise, particularly driven by strong appreciation in prices of retail and apartment properties. Retail properties saw an 11.8 percent price increase while apartment properties posted an 11.2 percent increase. Prices for office properties in central business districts rose 10.5 percent.
Apartment transactions made up the largest share of the first quarter volume, totaling $38.6 billion in sales. Office properties followed at $31.2 billion, and then retail and industrial sales at $17.9 billion and $12.6 billion, respectively.
Small commercial real estate transactions – such as grocery-anchored shopping centers, local warehouses, small offices and supermarkets – rose 8.5 percent year-over-year in the first quarter of this year. The average sale transaction price totaled $1.1 million during the quarter, according to NAR’s data.
“With inventory shortage continuing as a main concern, prices in small commercial real estate markets rose a more moderate 5.1 percent year-over-year during the period,” according to NAR’s report. “Average capitalization rates declined to an average 7.2 percent across all property types, a 60 basis point compression on a yearly basis. Apartments posted the lowest cap rate, at 6.9 percent, followed by hotel properties with average cap rates at 7.1 percent. Office and retail spaces tied with cap rates of 7.3 percent. Industrial transactions reported the highest comparative cap rates – 7.4 percent.”
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