Investor Confidence In US Property Market Pushes CRE Valuations Up In November

Renewed GDP growth, a robust labor market and strong investor confidence in US real estate continued to push commercial real estate valuations up in November.

Overall US CRE valuations rose 1.5% last month, and 8% year-over-year, according to Ten-X’s CRE Nowcast report. The online real estate marketplace uses proprietary technology, Google trends data and investor surveys to determine what's happening with CRE pricing in real time.

Of the five property sectors, office, industrial and multifamily continued to make healthy gains in pricing. Ten-X chief economist Peter Muoio tells Bisnow the biggest economic factors positively impacting CRE is the strength of the labor market and the country’s ability to continue adding jobs at a healthy clip.

“We’re starting to see wage growth accelerate, particularly in the lower income strata, which is important because it’s sort of been the income demographic left behind earlier in the economic cycle,” Peter says. “Unemployment is low, and the labor market is very liquid. People are changing jobs voluntarily at a healthy rate as opposed to when things are not as good and people hold onto jobs they have.”

The US office sector had the biggest pricing gains in November, up 3.7% month-to-month, while multifamily continued to show strong momentum with a 1.1% gain. Rounding out the three thriving sectors is industrial with a 1.8% increase in valuations last month. Investors remain bullish in this sector thanks to e-commerce and cloud computing companies fueling demand for warehouse space and distribution centers.

The low interest rate environment has strengthened CRE valuations, Peter tells us, even with the Federal Reserve’s plans to raise interest rates in December.

“Even though interest rates have ticked up since the election and the expectation is that the Fed will tighten in December, interest rates remain very low. There continues to be, on the part of investors both domestically and globally, a search for yields and US real estate is viewed as an alternative yielding asset with relative liquidity and it's attracting capital that’s driving up valuations.”