Last week’s Good News Friday reported steady progress in the commercial property leasing markets. Today we will summarize recent metrics and the outlook for the capital markets.
With loan maturities expected to peak in 2013, the commercial real estate industry continues to deal with the fallout from the Great Recession. But the market has proven to be not only resilient but a source of strong returns since bottoming in 2009.
- Sales transactions totaled $67.0 billion in the third quarter, up 19% from a year ago according to Real Capital Analytics. The total was juiced by Lehman Brothers Holdings’ buyout of its partners in the Archstone apartment portfolio, with the partial interest valued at $8.8 billion. Year-to-date sales transactions totaled $181 billion, an increase of 12% from a year ago. The average cap rate declined in the third quarter for office, industrial and hotel transactions, was unchanged for retail and rose slightly for apartments as multifamily development provided an outlet for investment capital targeting Class A assets. Significantly, RCA noted an increase in sales activity in secondary and tertiary markets, signaling investors’ growing appetite for yield and willingness to take some risk in order to get it.
- The National Council of Real Estate Investment Fiduciaries published third-quarter return data for the properties tracked in its database – generally Class A assets held by pension funds and their advisors. The total, unleveraged return in the third quarter was 2.34%, down from 2.68% in the second quarter. The income component was about level with the second quarter at 1.42%. But the appreciation component declined to 0.92% from 1.23% in the second quarter, another sign that investors are broadening their acquisition parameters in order to get more yield. Over the past four quarters, the return has been 11.0% with an income component of 5.9% and an appreciation component of 4.9% (rounded).
- The Mortgage Bankers Association’s originations index for commercial and multifamily reached its highest level in the second quarter since the fourth quarter of 2007, with loan originations up by 39% from the first quarter and by 25% from a year ago. The MBA noted that every major investor group increased its lending over the quarter.