Summary
Total commercial property transactions jumped after last month’s drop; multifamily transactions vaulted even as all other sectors declined. Buyer appetite showed overall strength with prices at or near postrecession highs, CMBS issuance close to recent monthly highs, and cap rates remaining low and stable. Permits and starts of all types of housing continue to climb. Prices of new single-family homes are just shy of all-time highs and condominium price increases were strong. The stall in employment growth and decline in unemployment raise many questions.
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The top ten trends in this month’s Barometer are:
- Employment growth in March slowed dramatically; the unemployment rate inched down only because of a sharp decline in the workforce.
- Total retail sales were up, though due, in large part, to a spike in gasoline prices. Inflation grew at its highest rate in almost four years due to the rise in energy prices. Consumer confidence dropped sharply.
- Private construction value was up, almost entirely due to an increase in residential construction. The manufacturing sector expanded for the fourth-straight month; S&P 500 returns were strong.
- Commercial property prices are at or near four-year highs, though still well below their prerecession peak, according to two repeat-sales indices. According to an index of REIT portfolio values, prices now surpass their prerecession peak. Cap rates remain low and stable.
- Total commercial property transaction volume recovered from the prior month’s dramatic drop, as transactions in the apartment sectors vaulted. Transaction volumes in all other sectors declined.
- CMBS issuance was down in March, but volume was still among the four highest monthly volumes in more than five years; all four of these months have occurred since November 2012. Spreads tightened a bit.
- Total REIT returns were well above their long-term average and positive in all sectors, with the lodging/resort sector the strongest.
- Multifamily permits have now been increasing fairly consistently for 3.5 years and starts for two years. Condominium sales volume was at a 5.5-year high and price increases were strong.
- Single-family permits and starts continue their almost two-year steady climb, now reaching levels seen in 1982. Prices are just shy of all-time highs; sales fell.
- Prices of existing single-family homes showed little change, according to repeat-sales indices, while prices of unpaired transactions increased slightly, but all are below prerecession highs; sales fell.
Overall, 65 percent of the key indicators in the Barometer have improved from the previous month’s Barometer; compared with a year ago, 87 percent have improved.
(For annual projections of key Barometer indicators, see the ULI Real Estate Consensus Forecast).
