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Commercial real estate sales close to record level in 2018

The U.S. commercial real estate (CRE) market saw a near-record year of sales in 2018.

Transaction volume totaled $562.1 billion last year, which was up 15 percent compared to 2017 and close to the peak of the market in 2015, according to Real Capital Analytics (RCA).

cresalesManhattan reestablished itself as the No. 1 commercial market with $34.2 billion in sales. Los Angeles, which held the top spot in 2017, was No. 2 at $28.8 billion.

Dallas ($23 billion), Chicago ($22.9 billion) and Atlanta ($17.7 billion) rounded out the top-five most active commercial markets.

Last year’s overall sales volume was only $8 billion less than the record established in 2015 and the third-highest amount since RCA began compiling data, the company said.

Deal volume rose in all the major asset types compared to 2017. Apartment deal volume was up 12 percent year over year to $172.6 billion; industrial, 25 percent to $92.4 billion; retail,  32 percent to $84.5 billion; and office, 1 percent to $134.6 billion.

Single-family asset sales also hit a record of $387.5 billion, up 3 percent from the previous high in 2016.

RCA analysts noted there were signs that the market was cooling off at the end of last year, however. The company tracks sales of assets valued at $2.5 million or more.

“There are mixed signals in the recent trends for commercial-property sales,” RCA Senior Vice President Jim Costello wrote earlier this month.

“In some respects, there is data out there for whatever story one wants to tell. One could pick and choose different indicators to tell a great story on performance, or one of caution and concerns. The truth is somewhere in between such views,” Costello wrote.

Usually, deal volume spikes in the fourth quarter as investors rush to complete deals before the end of the year. On average, fourth-quarter volume is 23 percent higher than third-quarter volume, but last year’s fourth-quarter volume was just 1 percent higher than in the third quarter, RCA said.

The company noted that 2018 was a year marked by constant volatility in the financial markets and the 10-year Treasury bond rate exceeded 3 percent, increasing borrowing costs.

Capitalization rates also stayed low, which is typically an indicator of higher asset prices. RCA’s price index for all properties rose 6.2 percent last year and was 30 percent higher than during the last peak in asset prices in 2007.

“Many investors had expected — almost hoped — that cap rates would increase with the interest rate turmoil, but there are no signs of such an increase yet,” RCA’s U.S. Capital Trends report said.  “Rather than react to the short-term movements in the [10-year Treasury bond rate], owners took a pause and deal activity faltered.”


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