By: Ross Moore | Chief Economist, Colliers USA
January data from Real Capital Analytics shows the investment sales market slowed to levels not seen since the first half of 2010. For all property types, January dollar volume registered $9.8 billion, a 66.4% decrease from December, but up by 51.7% from last January. Indeed, sales had not been below $9.0 billion since May of last year. January’s numbers were somewhat skewed by the absence of distress sales that were a key feature of the December tally. Not surprisingly, on a month-over-month basis all property types registered substantial declines; however, on a year-over-year basis office, retail and hotel were all up sharply. Posting modest declines were apartment, industrial and land. In contrast to sales in December, January offerings were up across all property types.
Capitalization Rates Mixed
January capitalization rate (cap rates) data showed no clear trend. The average composite commercial and multi-family cap rate came in at 7.01%, dropping slightly from 7.03% in December, and down quite significantly from a year ago when the average was 7.73%. Central Business District (CBD) office cap rates climbed 31 basis points during the month to register 6.17% while suburban cap rates dropped 19 basis points to average 7.50%. Strip retail cap rates moved 130 basis points lower finishing the month at 7.99%, while multi-family dropped by 1 basis point to average 6.47%. Industrial warehouse cap rates also moved lower, dropping by 9 basis points to 8.12%. While monthly movements varied by property type, every sector posted lower cap rates in January relative to a year ago.
Sales Volume Still Set to Track Higher
Despite lackluster sales numbers for January, the trend in investment sales is certainly still up. Offerings continue to rise and buyer appetite is still strong, as evidenced by recently announced transactions, including Blackstone’s purchase of Centro Properties and Ventas’ acquisition of Nationwide Health. Distressed sales are still a feature of the market although outstanding distress fell in January to $178.9 billion as resolutions continued. Troubled asset sales are expected to remain near 20% of total sales, however, the latest data shows a wide divergence by metropolitan area. Las Vegas leads the country at 45%, while at the other extreme Boston’s distressed sales came in at just 4% of total sales (scaled to market). The credit markets continue to be accessible, and investors have a little more comfort with respect to improving real estate fundamentals. The market, however, remains highly fragmented between top grade real estate, bottom grade real estate and everything else. Looking to the balance of 2011 investment sales volumes are anticipated to be in the $15 – 18 billion range per month leaving full year sales at approximately $200 billion. By comparison 2010 sales were $136.6 billion.
Ross Moore is the Colliers International’s Chief Economist with a focus on providing bottom-up and top-down analysis of commercial real estate markets across the United States. In addition to his North America wide reports, Ross also authors all global research produced by Colliers.