ULI Center for Capital Markets and Real Estate

Buyer appetite for commercial property hit post-recession highs as transaction volumes vaulted, prices strengthened, and CMBS issuance shot up. Permits and starts of all types of housing continue to hit high notes; condominium sales are staging a strong comeback now, as well. A negative fourth-quarter GDP provides the first insight into the impact of major government cutbacks.

The top ten trends in this month’s Barometer:

  • Employment growth slipped but remained above the long-term monthly average, with notable gains in retail and construction. Retail sales were strong and spending on private construction increased, almost entirely due to residential construction.
  • The economy contracted in the fourth quarter after more than three years of expansion, as indicated by negative GDP growth. Cutbacks in federal defense spending played a significant role in this decline. At the same time, personal consumption expenditures were strong.
  • Commercial property prices reached—or were nearly at—four-year highs, depending on the data source. Monthly and quarterly cap rates remained low and stable.
  • Commercial property transaction volume vaulted as end-of-year deals were wrapped up; volume in December 2012 was at a 5.5-year high.
  • CMBS issuance shot up to a five-year high and spreads tightened a bit. Delinquencies resumed their decline.
  • NCREIF property returns were up in all sectors in the fourth quarter; total quarterly returns have been consistently positive for the past three years, but the rate of growth slowed in 2012. Total REIT returns in January were positive in all sectors, except for apartments. Total 12-month REIT returns were strong for all sectors except apartments.
  • Multifamily housing starts have increased a whopping 46 percent over the past five months and are at a four-year high. Multifamily housing permits slipped but are just behind their 4.5–year high.
  • Sales of condominiums were near a five-year monthly high. Prices, down substantially from their peak, showed strong improvement over those seen one year ago.
  • New single-family inventory continues to rise from the summer’s 50-year low, as single-family permits and starts are at monthly levels not seen in almost 4.5 years. Prices surpassed their prerecession peak; sales dipped.
  • Inventory of existing single-family homes fell to a 12-year low; sales slipped. Prices remain significantly down from their peak but are in recovery mode. New foreclosure proceedings are down to their lowest level in almost six years.

Overall, 72 percent of the key indicators in the Barometer have improved from the previous month’s Barometer; compared with a year ago, 86 percent have improved.

For details, click on the Economy, Capital Markets, Housing and Commercial/Multifamily tabs, above.

(For annual projections of key Barometer indicators, see the ULI Real Estate Consensus Forecast).



Monthly employment growth has now remained above the 40-year monthly average for seven straight months. The unemployment rate remained close to its lowest level in four years. Influenced by a reduction in federal defense spending and private inventory investment, fourth-quarter GDP growth was negative. Consumer confidence fell sharply, but retail sales were strong in December. The manufacturing sector expanded. Private construction was strong, primarily due to residential construction. S&P 500 returns were solid.

Net job growth
 in January of 157,000 jobs was made up of 166,000 new private sector jobs and the loss of 9,000 public sector jobs. January’s job growth is the lowest of the last four months. The country has 3.2 million fewer jobs than it did almost five years ago; at January’s growth rate, it would take another 17 months to regain just those jobs. The greatest private sector job gains in January were in retail trade, construction, health care, and wholesale trade. The overall unemployment rate in January rose slightly from 7.8 percent to 7.9 percent, but remained below 8 percent for the fifth-straight month.

Fourth-quarter GDP growth was –0.1 percent, a startling juxtaposition to the third-quarter growth of 3.1 percent. The last time GDP growth was negative was in the second quarter of 2009. The decrease in the fourth quarter primarily reflects negative contributions from federal government spending, private inventory investment, and exports that were partly offset by positive contributions from personal consumption expenditures, nonresidential fixed investment (primarily computers and software), and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The Consumer Confidence Index fell for the third-straight month, declining sharply from 66.7 in December to 58.6 in January. Total retail sales in December were up 0.5 percent, driven by solid increases in motor vehicles, food services, health and personal care stores, and clothing stores, offset by a substantial decrease in gasoline sales. Excluding gasoline sales, retail sales rose by 0.8 percent in December. Total retail sales of $415.7 billion are 4.7 percent higher than those of a year earlier, and 5.1 percent higher excluding gasoline.

The value of private construction rose 2 percent in December to the highest monthly volume in more than three years, up 15 percent from a year ago. December’s increase was due almost entirely to residential construction. Public construction put in place slipped 1.4 percent and is down almost 6 percent from a year earlier. December’s total construction value of $884.9 billion is down 27 percent from the prerecession high in March 2006, with private construction down 36 percent.

Inflation, as measured by the Consumer Price Index, was unchanged in December. This was due to a decline in the gasoline price index and some commodities, but with offsetting increases in most other categories. Over the past 12 months, inflation was 1.7 percent.

Monthly returns for the S&P 500 were 5.2 percent in January, the highest monthly returns in more than a year and substantially above the historical monthly average (since 1970). Year-over-year returns were at 16.8 percent.

The Purchasing Managers’ Index registered 53.1 in January, an increase from 50.2 in December, indicating expansion in the manufacturing sector for the second-straight month.

Real Estate Capital Markets


Commercial property prices were at or approaching four-year highs. Cap rates remained stable. Total transaction volume vaulted at the end of the year. NCREIF returns were positive in all sectors for the fourth quarter and REIT returns were strong in all sectors, except for apartments. CMBS issuance was at a five-year high and spreads tightened a bit; delinquencies resumed their decline.

Commercial property sales volumes
(excluding land and hotels) jumped 108 percent from $21.7 billion in November to $45.3 billion in December, according to Real Capital Analytics (RCA). Transactions were up in all sectors. This was a higher end-of-year spike than seen in the last few years, and compared with a year earlier, transactions are up 46 percent, with the industrial sector showing the largest year-to-year increase—83 percent—and the office sector showing the lowest increase at 28 percent. Total transactions in 2012 were up 25 percent over 2011.

According to RCA, the ten most active sales markets in the past 12 months are, in descending order: Manhattan, Los Angeles, Chicago, Seattle, San Francisco, Houston, Dallas, Boston, Atlanta, and Phoenix. More than $6.32 billion in transactions have been recorded in each of these cities since January 1, 2012.

Moody’s/RCA Commercial Property Price Index was up 0.4 percent in November almost back to September’s four-year high. (This is a same-property index based on all U.S. transactions exceeding $2.5 million.) Values are 4.5 percent higher than a year ago but still down 22 percent from the December 2007 peak.

The value-weighted composite CoStar Commercial Repeat-Sale Index in November was up 0.9 percent from October, the highest level in four years. (The index is based on a repeat-sales methodology that tracks transactions exceeding $100,000 and includes land sales.) Values are 6 percent higher than a year ago but are still down about 15 percent from the peak value in September 2007..

The NCREIF Property Index turned in a positive fourth quarter with total returns of 2.5 percent, sustaining the consistently positive returns of the last three years, but at somewhat lower rates in 2012 than in 2010 and 2011. The capital appreciation component was 1.1 percent for the quarter. Total 12-month returns are now 10.5 percent. Returns for the quarter by property sector were all between 2.2 and 2.8 percent, with the exception of 3 percent returns in the retail sector.

Capitalization rates, as reported by Real Capital Analytics (RCA), were essentially stable at 6.89 percent in December—down only 1 basis point from November. NCREIF cap rates remained compressed in the fourth quarter, essentially stable at 5.87 percent, also down just 1 basis point.

Total equity REIT returns were strong in January at 3.7 percent, a repeat of December’s returns. For individual core sectors, positive returns ranged from 9 and 7.4 percent for the industrial and lodging/resorts sectors, respectively, to 3.6 and 3.2 percent for the office and retail sectors, respectively. Returns for the apartment sector were –0.6 percent. One-year total returns as of January stood at 15 percent, with one-year returns reaching 30 percent for the industrial sector and 22.2 percent for the retail sector. Lodging/resorts at 9 percent and apartments at 2 percent had the lowest one-year returns.

CMBS issuance
during January was $8.5 billion, according to Commercial Mortgage Alert, the highest monthly volume since the end of 2007 and approaching double the long-term monthly average (since 1991). Total issuance in 2012 of $48.4 billion was 48 percent above that in 2011. The spread over swaps for 10-year AAA new CMBS issuance was 77 basis points in the last week of the month, a notch down from 81 basis points in the last week of the previous month. The spread is well below the 155 basis point spread of a year ago, signaling strong appetite for CMBS securities. According to Trepp LLC, CMBS delinquency rates continue to retreat from last summer’s historical high and are now at 9.57.

 As reported in last month’s Barometer, bank real estate loan delinquency rates continued to fall in the third quarter. Commercial and multifamily mortgage delinquency rates are now 3.16 percent and 1.84 percent, respectively. The multifamily delinquency rate is now below the long-term historical average (since 1991). Construction and development loans have the highest delinquency rate at 9.54 percent, substantially above the quarterly historical average (since 1991) of 5.3 percent.



Price recovery of new single-family homes is complete—prices have now surpassed their prerecession high. Existing-home prices remain substantially below their prerecession high, but all data sources show an increase from one year ago, even with some recent fluctuations. Permits and starts of all housing types are near or at monthly levels not seen in more than four years. Inventory of new single-family homes continues to rise from the summer’s 50-year low while inventory of existing single-family homes fell to a 12-year low. Sales of new single-family homes dipped and sales of existing homes slipped slightly, both down from three-year highs, while sales of condominiums rose to the second-highest monthly level in over five years. Total new foreclosure proceedings were down to a six-year low.

Existing single-family home prices declined, albeit just barely, according to the S&P/Case-Shiller Index (which tracks repeat sales in 20 cities), with a –0.09 percent shift in November. Prices also slipped a bit the previous month, but these small declines follow six consecutive months of price increases, including two months with the highest growth rates since mid-2004; prices are now 5.5 percent above those of one year ago. Still, prices remain significantly lower—29 percent—than their peak in July 2006. The Federal Housing Finance Agency House Price Index (HPI) for existing single-family home prices (tracking repeat sales in the entire country) rose 0.48 percent in November, a rate approaching double the long-term monthly average (since 1991). Prices are now up 5.7 percent from a year ago. Still, the index is 15 percent lower than its peak in June 2007.

Existing single-family home prices (based on individual, unpaired transactions for the entire country), as tracked by the National Association of Realtors (NAR), increased 0.5 percent in December, a rate almost double the long-term average (since 1990). The median price for existing single-family homes stood at $180,300 in December. Prices are now 11 percent higher than one year ago, but still 19 percent below the peak in 2006.

New single-family home prices
 were up 1.3 percent in December. December’s median price of $248,900 is up almost 14 percent from December 2011 and exceeds the 2007 peak by 0.4 percent, or $1,000.

Single-family building permits were up 1.7 percent in December (an annual rate based on a three-month moving average) to 571,000. The number of permits has increased each of the past 20 months and is at its highest level in more than four years (since August 2008). Still, December’s permit numbers are almost 70 percent below the prerecession high witnessed in November 2005 and 40 percent below the long-term monthly average (since 1970). Single-family housing starts increased 1.5 percent in December (on a three-month moving average) to 592,000 and are now at their highest level in over four years (since August 2008); however, starts are 67 percent below the prerecession high in November 2005.

Sales of new single-family homes
(seasonally adjusted) fell 7 percent to 369,000 in December from an almost three-year high in November. Sales remain up 9 percent over December 2011. Still, monthly sales volumes are 73 percent below the prerecession high in July 2005. Inventory increased for the fourth-straight month, reversing five years of monthly declines. The multiyear decline had brought inventory in July and August to the lowest monthly level since record keeping began in 1963.

Sales of existing single-family homes (seasonally adjusted), which had reached a three-year high in November, declined by 1 percent in December to 4.35 million. December’s monthly sales were 31 percent below the prerecession high in September 2005. Inventory declined by about 10 percent to 1.60 million, a low not seen since 2001. The forward-looking NAR Index of Pending Sales (of existing single-family homes, condominiums, and co-ops), which had reached an almost three-year high in November, fell 4 percent to 101.7 in December.

Multifamily building permits fell 1.3 percent to 294,000 in December (based on a three-month moving average); November’s building permits had reached the highest monthly level since August 2008. Multifamily housing starts were up a substantial 11 percent in December to 293,000, the fifth-straight month of progressively stronger growth. Monthly starts have increased a whopping 46 percent over the past five months and are at their highest monthly level since September 2008.

The rent index for apartments, calculated quarterly by CBRE and reported in last month’s Barometer, was up 1 percent in the third quarter of 2012 to $1,310, which is 4.8 percent higher than a year earlier. Apartment vacancy rates, reported quarterly by CBRE, dropped to 4.5 percent in the third quarter of 2012, continuing an almost three-year slide. (Fourth-quarter data will be available in next month’s Barometer).

Existing condo sales reached 590,000 in December, up 2 percent from November. This is up 23 percent over December 2011 and 20 percent above the long-term monthly average (since 1989). Inventory edged up by less than 1 percent in December but remains substantially lower than one year ago—23 percent—and off 37 percent from the long-term monthly average; supply was unchanged from November at 4.6 months.

New foreclosure filings—default notices, scheduled auctions, and bank repossessions—decreased 10 percent in December to a total of 162,511, the lowest since April 2007, according to RealtyTrac. The firm noted that all three types of foreclosure filings—default notices, scheduled foreclosure auctions, and bank repossessions—decreased.

Home mortgage rates (30-year fixed) moved up in January to 3.41 percent from 3.35 percent in December; the latter was the lowest monthly rate since record keeping began in 1971.



The apartment sector continues on a vigorous track, with already low vacancy rates dropping further and rents climbing to new all-time highs; with completions at a three-year high, the pace of these improvements may soon be tempered. Office and industrial fundamentals continue to improve in the third quarter, albeit very slowly, as vacancy rates creep down, rents creep up, and both are assisted by extremely low completion levels. Retail fundamentals show one small sign of relative improvement as availability rates dipped below 13 percent, but rents continue their 4.5-year decline; completions are at a fraction of the historical monthly average for this sector. Both hotel occupancy rates and RevPAR showed healthy improvement from a year earlier.

Office vacancy rates
 are down to 15.5 percent in the third quarter of 2012 from 15.7 percent in the second quarter, according to CBRE. The last two years have been marked by slow declines in vacancy rates interspersed by plateaus. Rents crept up 0.5 percent in the third quarter, the seventh-straight quarter of rent growth, and are up 2.8 percent from a year earlier. Net absorption was 8.5 million square feet (789,676 sq m), about 75 percent of the long-term average (since 1988), while completions remain low at 12 percent of the long-term average (since 1980).

Retail availability rates
 barely changed, down from 13.0 percent in the second quarter to 12.9 percent in the third quarter, according to CBRE; still, this is the third-straight month of decline (albeit slow) and the first time in almost three years below 13.0 percent. Rents continued their 4.5-year slide in the third quarter and are off 1.4 percent from a year earlier. Net absorption was 2.8 million square feet (260,178 sq m), about one-third of the long-term average (since 1989); completions stood at less than 10 percent of the long-term average (since 1980).

Industrial availability rates
 barely changed, notching down from 13.2 percent in the second quarter to 13.1 in the third quarter, but continued their slow eight-quarter decline; rates are now down 60 basis points from the same quarter a year earlier. Rents edged up for the third-straight quarter but are still barely above the 14-year low reached in the last quarter of 2011. Net absorption was strong at 21.65 million square feet (2.01 million sq m), close to 70 percent of the long-term average (since 1980); completions stood at about 20 percent of the long-term average (since 1980).

Apartment vacancy rates
 dropped to 4.5 percent in the third quarter of 2012, continuing an almost three-year slide. Rents were up 1.0 percent in the third quarter and are 4.8 percent higher than a year earlier. Absorption remained high at 170 percent of the long-term average (since 1994). Completions in the third quarter were fairly steady at 35,095 units, after a sharp jump to a three-year high in the second quarter. Completions are at 83 percent of the long-term average (since 1994).

Hotel occupancy rates stood at 67.1 percent in the third quarter of 2012, up from 66.3 percent in the same quarter a year earlier, according to Smith Travel Research, while the RevPAR Index was up 5.2 percent from a year earlier.

(This section draws from third-quarter data which was first presented in last month’s Barometer).