End-of-Year Review on Investment Sales

As we get closer to the end of 2017, we’ve seen changes from last year’s sales. Transaction volumes have shrunk, and there has been slow growth. However, it’s not a major concern… yet. Each quarter this year saw a decline, but that doesn’t mean there isn’t hope for the future. Despite the shortcomings, many analysts and investors remain optimistic.

Transaction Volumes Continue to Drop, Retail Is Concerning

Transaction volumes for the third quarter brought in $114.2 billion, demonstrating another decline. Last year saw a decline in volumes as well; there was a 13% year-over-year drop. However, a positive is that deal volumes remain high. The industrial segment was growing last year, but this year, we’ve witnessed a decline due to changes in retail. As a result, values for malls are dropping. So far, there has been only $4 in retail investment sales in the fourth quarter. This likely has to do with many retailers filing for bankruptcy, as well as the advancement of e-commerce.

Prices Are Rising

Although deals have been somewhat shaky this year, prices have climbed up. Overall, prices for all property types have increased. Compared to 10 years ago, prices are up by 20%, which has scared some investors off. Additionally, some sellers have difficulty getting buyers because of rising prices, so they end up taking their properties off the market and refinance them instead. Despite rising prices, deal volumes in some cities remain strong. LA, Boston, and D.C. has seen growth in sales in 2017.

Suburban Office Market Sees Growth

From 2015 to 2016, there was a 6% decrease in office sales. Sales volumes for cities such as New York and D.C. are still high, but we cannot deny the decrease in sales. Although we have seen a slump in investment sales in the office market the last two years, there is growth in suburban sales. Prices for office assets increased by 5.1% this last quarter. The increase in prices have repelled many investors, which means that the number of investors interesting is shrinking in the U.S. However, investors have moved away from major primary cities to seek other opportunities, hence why the suburban office market is growing. Capital value growth for the office market also bounced back to 5.6% in the third quarter, which is actually the most significant growth this year. Because of the growth in this sector, the office market remains the most lucrative market in this industry.

Interest from Foreign Investors

Despite investment sales declining in several sectors, deal volumes remain strong in some cities, particularly secondary markets. Foreign investors are becoming more knowledgeable in these markets and have shown growing interest in secondary markets in the U.S. It’s cheaper to invest in these markets, and often times there are positive returns.

While transactions are shrinking, deal volumes remain high. Both 2016 and 2017 have shown slow growth, and it’s expected that by the end of the year, the overall transaction volume will have declined.