Matthew McGovern is a director at GRS Group. He can be reached at 646.760.0851 or via email at [email protected]
It seems like commercial real estate is getting used to the sustained macroeconomic reality of uncertainty, so much that transaction volumes have recently hit near-record numbers.
A recent Cushman & Wakefield CRE capital markets report (download here) said that 2018’s transaction volume of $524 billion was the third-highest ever recorded, behind 2007 and 2015. Last year’s price tag was 16 percent over 2017.
However, it sounds like it will be a challenge this year to keep up the strong pace, with talks of a potential commercial real estate downturn, due to pressure from rising interest rates, the ongoing trade war and other factors. However, the last Fed rate hike was during 2018’s fourth quarter, when fourth-quarter single-asset sales totaled $97.3 billion, the second highest total on record, rising four percent quarter over quarter and 1.8 percent year over year.
Multifamily transactions experienced the highest dollar volume in 2018, hitting $161.9 billion, up 11.3 percent year over year. The biggest increase in sales volume last year was enjoyed by the hotel sector, which rose 53.4 percent, at a $40.8-billion total. Retail, which is a sector that hasn’t garnered a whole lot of positive attention as of late, did surprisingly well, seeing a 37.1-percent jump in dollar volume, reaching $74.6 billion.
The top five markets for transaction volume last year were not a surprise. The New York City metro area came in first, at just over $64 billion; the L.A. area came in second, at $43.8 billion. The metros rounding out the top five were San Francisco ($32.2 billion); Washington, D.C. ($24.2 billion); and Chicago ($22 billion).
Overall, commercial real estate prices have still increased, but at a slower rate than previous periods. Asset prices rose 7.1 percent in November and December, down from an 8.3-percent rise during the same two months in 2017.The largest price increases by property type were in the apartment sector, followed by suburban offices, then CBD office and industrial assets. Retail prices rose but lagged other properties’ increases.
Going forward, it’s not a foredrawn conclusion that commercial real estate won’t see continued growth in dollars spent on properties in 2019. After all, another rise in interest rates seems uncertain due to economic challenges.
If commercial real estate can continue to remain strong in the face of uncertainly, who knows? 2019 could end up as a record-breaking year for transaction volume.
About GRS Group
GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.
Through the company’s proprietary management process, Global Services Connection, GRS Group delivers an integrated suite of services including Financial Advisory, Transaction Management, Assessment and Title Insurance. We provide a single point of contact, capable of leveraging the GRS Group portfolio of companies and delivering customized solutions to assist our clients in achieving their investment goals.