Aaron Jodka
- Signs are pointing to CRE values bottoming and a recovery emerging.
- The buyer pool is getting deeper, and valuation requests continue to increase, implying continued market activity.
- Data from CoStar, Green Street, MSCI, Moody’s, and NCREIF can help support pricing direction.
- Multifamily and industrial stand out as the asset classes furthest into recovery, though retail has shown the strongest gains.
- Office’s slide also shows signs of abating as capital returns to this discounted asset class.
Investors are continually monitoring where we are in the cycle and where asset class pricing is headed. With that in mind, we analyzed several major data providers to compare how each asset class is performing. Despite recent market volatility, investors are looking to allocate capital to commercial real estate. Private capital is driving today’s transaction activity, allowing for a wide variety of investment targets and risk profiles. Owners are seeking property valuations at an increased pace, and assets on the market are receiving deeper bid sheets. Both trends indicate improving market conditions and provide support for pricing.
When comparing various data providers, it is important to understand nuances in the data. Some are appraisal-based, others are transaction-based, and some use a mix of sales data and public market performance. While they may not show consistency in levels, their directional trends are telling. Retail is the only asset class where all sources report value gains over the past 12 months, suggesting it is the furthest along in this new cycle or the broader market recovery. With values pressured in the years leading up to the pandemic, its recovery is a welcome sign.
Industrial and multifamily follow—long-standing favorites due to their strong liquidity—and boast the highest year-over-year gains of any asset class. Office is showing signs of a bottom, though not across the board. CoStar, Moody’s, and NCREIF still show a meaningful pullback in values over the past 12 months. Hospitality exhibits a wider dispersion, with MSCI noting gains, Green Street reporting values pulling back, and CoStar and NCREIF slightly negative.
With tremendous capital backstops, private equity real estate investors should begin to come off the sidelines and take advantage of shifting price momentum. It is not uncommon for major institutional investors to see multiple quarters of price increases before reentering the market. While uncertainty remains, real estate fundamentals should continue strengthening, provided the economy maintains job growth and consumer spending holds up. This dynamic will lure capital from the sidelines, reinvigorating investment sales activity and, in turn, pricing.
Ryan Chapman