U.S. Property Markets Shake Off Slowdown and Power On

by | 29 September 2017

Our 2017 Capital Flows Midyear Update addresses the recent slowdown in U.S. property markets. Despite several quarters of decline in year-over-year transaction volume, the rate of decline has been falling, suggesting markets are stabilizing.

Price appreciation has renewed and price gains have been broad-based across most sectors, particularly in major markets. While pricing per square foot has been flat to falling in certain sectors, prices for high-quality assets are pushing into record territory.

Key takeaways from this report include:

  • Overall transaction volumes for the first half of 2017 (1H 2017) are down 19% from 2H 2016 and down 7% from a year ago (1H 2016). While these are meaningful declines, the rate of decrease has been falling in the last two quarters. Indeed, volumes gained modestly in Q2, up 4% since Q1.
  • Investment capital flows remain robust by historical standards. Sales volumes are on pace to log the third greatest annual total since the recession.
  • Portfolio and entity purchases continue to account for a disproportionate share of the recent sales declines, while individual property transactions have been relatively stable.
  • Office and industrial buildings account for larger shares of all transactions than they did a year ago, while retail and especially multifamily transactions have decreased.
  • Investment momentum continues to shift from primary into secondary markets, and from CBDs into inner suburban submarkets, particularly for offices and apartments, as both foreign and domestic investors eschew premium pricing in the top markets.
  • Despite the slowdown in sales activity this year, pricing remains strong and most sectors saw increased values per square foot in 1H 2017 over 2H 2016 and a year ago. Appreciation was particularly strong in Q2 2017 after several quarters of moderate gains and losses. In general, appreciation was greater in the primary markets, especially for office and industrial properties, while multifamily and especially retail property prices lagged.
  • The relative strength and stability of the U.S. economy and ultralow interest rates will continue to make real estate a compelling option for investors, which is likely to keep property capital markets strong, attracting offshore capital to our markets.