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Skyscraper Buildings Made From Dollar Banknotes

The Green Street Commercial Property Price Index increased by 4.4% last month, with prices of every asset type included in Green Street’s index increasing.

The index is now a mere 1% below pre-pandemic levels.

“Top lines are improving, cap rates are declining, and property prices are quickly recovering lost ground,” said Peter Rothemund, managing director at Green Street. “In some cases, like self-storage, industrial, and manufactured home parks, prices are hitting new highs—and are now 15-25% higher than pre-COVID marks.”

Buyers and sellers have been in a standoff over pricing since the pandemic began, and rising prices suggest that buyers are now more willing to negotiate on price.

“While some discounting has occurred in unique situations, valuations of most asset types have largely held steady or surpassed pre-health crisis levels as strong buyer interest has aligned with limited for-sale inventory,” Marcus & Millichap notes in a recent report on the phenomenon. “This dynamic has also led to cap rate compression among sought after assets.”

Pricing may also be moving because of higher transaction volume, which helps with price discovery. Commercial real estate transaction volume is expected to recover relatively quickly through 2023, to $590 billion versus $500 billion in 2021, according to the Urban Land Institute.

 

Source: GlobeSt.

10349421 - hand of businessman holding dollars

Pricing and cap rates for Class A industrial product are expected to stabilize for the remainder of this year, according to a new report from Cushman & Wakefield—though trophy properties in the Inland Empire of Southern California, New Jersey, South Florida, Seattle, and Dallas will reap the most aggressive overall rates.

Spring 2021 data from C&W shows that overall capitalization rates range widely by asset class, with a nearly 90 basis point difference between Class A and B industrial product and a 235 bps difference between Class A and C industrial facilities. And overall rates for Class C properties are clocking in 143 bps higher than their Class B counterparts.

Average cap rates for Class A assets ranged from between 3.25 and 5.5% in spring 2021 and declined by 33 basis points year over year, while Class B went down by 58 and Class C assets declined by 89 bps since last spring. And while demand for Class A product in core US cities has been strong, over the past five years rates began to stabilize.

“Little if any additional compression is expected for the remainder of 2021 and into 2022, with investors closely monitoring interest rates and 10- year Treasury yield rates,” the report states.

Cap rates for Class B and C product are logging the largest decreases as investors target more of the former to generate higher yields and returns from higher-priced Class A assets. The average for Class B product this spring fell between 4 and 7%, while the average cap rates for Class C assets ranged between 5 and 9%.

“Due to the lack of available and higher priced Class A product, investors are now targeting Class B and, in some cases, Class C product, seeking higher yields/returns—especially from those assets located near populated urban areas,” the report states. “Product close to urban areas has become the driver in order to reduce shipping and, more importantly, delivery times.”

 

 

Source: GlobeSt