Asset pricing remains near record highs; industrial investment leads in 2017

  • Commercial real estate investment volume (single-asset, portfolio and entity-level transactions) totaled $122.3 billion in Q4 2017, a decrease of 12.6% from Q4 2016. Total investment for the year was $464.0 billion, a decrease of 6.7% from 2016. Declines in CBD office, retail center and multifamily investment were the primary drivers of the annual volume drop.
  • Increased investment in industrial warehouses helped stave off further pull-back, while all other sectors decreased moderately. Industrial investment volume increased by 19.7% in 2017.
  • New York, Los Angeles and San Francisco attracted the most investment in 2017, accounting for 26.1% of all acquisitions. The top-15 markets accounted for more than half (63.0%) of total 2017 investment activity.
  • Cap rate movement was largely unchanged in H2 2017. Industrial cap rates fell by 13 basis points (bps), while multifamily cap rates fell by 3 to 7 bps. Office and hotel cap rates were unchanged from H1 2017. Retail saw the largest cap-rate increases, with rates for power centers rising by 44 bps.
  • Pricing metrics for most property types are at or near all-time highs, with mild deceleration in recent months. Increases in multifamily pricing continue to lead the national index.
  • Overall, capital markets remain active, even with slightly depressed investment levels. Commercial mortgage production increased, as capital availability remained relatively high. Specifically, CMBS activity increased by 25.4% year-over-year, and GSE lending increased by 24.3%. CBRE’s Lender Momentum Index fell by 15.9% year-over-year.