NEW YORK CITY-US commercial property sales totaled $31 billion in the first quarter, a 69% year-over-year increase on the first three months of 2010, Real Capital Analytics said late last week. Office dollar volume vaulted 300% over Q1 ’10 for CBD properties, which also posted the lowest cap rates of any sector. Office overall more than doubled with a 127% increase, just ahead of hotel volume with a 126% YOY gain.
However, that increase in velocity coincided with a pricing decline. Using RCA data, the Moody’s/REAL National All Property Price Index found that prices fell 3.3% in February for the third monthly decline. The index is currently only 0.8% above its post-peak low set last August, Moody’s Investors Service said last week.
“There has been a clear distinction between the level of volatility when the top was forming in 2007 and the ongoing bottoming process,” says Tad Philipp, Moody’s director of commercial real estate research, in a release. “As the top was forming, there was ample repeat-sales transaction volume and few distressed sales. In contrast, the bottoming process has seen large monthly price swings in part caused by fewer repeat-sales, a high percentage of which are considered distressed.”
Nineteen of the past 20 months have seen distress account for more than 20% of repeat sales transactions, according to Moody’s. That being said, RCA noted that Q1 saw just $14.9 billion in new distress, the lowest quarterly tally since Q3 2008.
At the other end of the spectrum, the first quarter of this year saw a high not achieved since Q3 ’08, as prospective sellers listed new offerings totaling more than $51 billion, according to RCA. Further, RCA says that at the end of Q1 at least $28 billion of deals were reported in contract, not including merger and acquisition activity led by AMB’s pending merger with ProLogis.
The uptick in sales during Q1 was not uniform across the US, RCA says. Not surprisingly, the greatest improvements were in major markets in which core office assets dominated the sales picture. San Francisco and Washington, DC, for example, continued their ’10 winning streaks into Q1 of this year with volume gains on the order of 300%, while Minneapolis’ YOY increase was 600%, RCA says.
Less spectacularly, Manhattan, Chicago and Los Angeles also improved in Q1 ’10, RCA says, while Boston also outpaced he national benchmark. There was also a pickup in the East Bay, Phoenix and even Detroit. However, Orange County in California saw a 68% YOY decline in volume, and other visible markets lost momentum this past quarter, including Baltimore; Tampa, FL; Orlando; Austin, TX; Houston; and San Jose.
Sector-wise, RCA says only full-service hotels approached the strength of CBD office. Volume in this sub-sector increased 180% YOY over Q1, although from a small base the year prior. Retail in general, and strip centers in particular, improved this past quarter. But some of the strongest performers last year—including limited-service hotels and mid/high-rise apartments—lost momentum this past quarter, while industrial trends continued to lag the market, according to RCA.
Although development activity and financing have yet to ratchet up, land sales posted gains in Q1. RCA says acquisitions in this category rose by more than 50% YOY.
Source: Globe Street