By: Ross Moore, Chief Economist – Colliers International USA
Third quarter data from Real Capital Analytics confirms the investment sales market is bouncing back with considerable vigor. For all property types third quarter dollar volume registered $28.9 billion, a 35% increase from Q2 and more than double year-ago levels. Putting the latest numbers in context, investment volumes are now near 2002 levels when investment volume averaged $25.8 billion per quarter but well below 2007 when investment sales averaged $126.7 billion per quarter.
So Which Property Type is Most Active?
For the third quarter multi-family led the way outpacing office properties by a slim margin. Multi-family investment sales totaled $8.5 billion compared to office which recorded $8.1 billion in sales. For multi-family however, this was a 63% increase quarter-over-quarter while office was down, albeit by less than 1%. For the multi-family and office sectors, year-over-year sales were up 129% and 68% respectively. Retail ranked third with sales of $5.6 billion and industrial fourth at $4.0 billion. For the quarter, retail investment sales were up 81% while industrial was up 24%. Year-over-year retail was up 131% and industrial 120%
And What about Prices?
Continuing a trend for all of 2010 capitalization rates (cap rates) continued to move lower with composite commercial and multi-family cap rates down 29 basis points to average 7.31%. Office cap rates fell the most, falling by 76 basis points during the quarter. Interestingly suburban cap rate declines were largely behind this latest move while CBD rates only moved marginally lower. Retail cap rates moved a more modest 20 basis points lower during the quarter while multi-family dropped by 12 basis points. Industrial cap rates actually registered a modest move higher, although for the year, third quarter cap rates were down 44 basis points since the beginning of the year. Corresponding with lower cap rates average prices were up by 7.3% in the quarter.
This is a Generally Upbeat Report
There is no doubt the trend in investment sales is up. Sellers have adjusted their selling price, lenders and special servicers are beginning to release their problem real estate (distressed sales accounted for 14% of total sales – up from 10% last quarter), the credit markets continue to be more accommodative, and lastly investors have more comfort with respect to improving real estate fundamentals. Looking forward to fourth quarter results, investment volumes are anticipated to be near $35 billion leaving full year sales at $100 billion — a nice round number and something to expand upon in 2011. After a prolonged period of inactivity, the investment sales market seems to be finally showing signs of functioning a little more like most of us remember.
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.