U.S. Investment Activity Bounces Back To $109.5B From Beginning Of The Year Slump

U.S. investment activity is on the rebound.

Transaction volume rose 3.2% in Q3 to $109.5B, according to data from online real estate marketplace Ten-X, though the overall increase does not reflect declines in some sectors.

Ten-X Chief Economist Peter Muoio expects transaction volume to continue inching upward moving into 2018, albeit at a glacial pace compared to the 15.6% leap in transaction volume that occurred in Q2 following the plunge in the first quarter.

“The slowdown in transactions at the start of the year came with the jump in interest rates and the [uncertainties of the] election. As people have readjusted to the new order, deal flow has started to pick up,” Muoio said. “Investors are emerging slowly from the shock and awe of higher interest rates and the new administration.”

While there were strong increases in investment activity in some sectors, others experienced sharp drops.

Of the five primary commercial property segments — office, multifamily, retail, hotel and industrial — office and hotel suffered a drop in investment activity during the quarter. Office deal share dropped 420 basis points to 26.2%, while retail fell below its 10-year average to 12.1%.

“One of the things noteworthy is office, retail and hotel have fallen behind their long-term [averages]. Those are the three problem sectors involving issues with fundamentals,” Muoio said.

The most desired assets among developers remain industrial and multifamily properties, both of which accounted for a large portion of total deal volume during the quarter. Apartment investment in particular totaled 36.4% of overall transaction volume. 

Sluggish Growth

Though activity is up, deal volume is still far below its cyclical peak and down 9.6% compared to Q3 2016, Ten-X reports. 

The economy is strong and continues to experience one of the longest recoveries in U.S. history, but investors remain cautious regarding the length and age of this cycle, and are tracking sector fundamentals closely in search of signs of a coming correction. Future policy changes, such as tax reform and infrastructure spending, are causing investors to pause until the impact on the industry is clear. 

Muoio said investment activity will continue, though he is not anticipating a lot of growth, especially as the details of tax reform are still being hammered out.

“If this new law is enacted, a lot of it has to do with real estate," he said. "A lot of it is favorable to real estate on a bunch of levels.”