Commercial real estate fundamentals are generally healthy, but asset appreciation has clearly slowed, according to a Green Street Advisors webinar April 4.
Andy McCulloch, managing director of real estate analytics at Green Street, noted that “demand for commercial real estate looks okay to pretty good,” with supply deliveries now almost back to their long-term norms. With supply and demand roughly in balance, “on average we’ll see inflationary-type rent growth,” he said.
At the same time, asset appreciation has slowed, according to Green Street. “Value appreciation has practically stopped in aggregate,” although large variations exist, said Joi Mar, a senior analyst at Green Street. Asset values are still rising in the industrial sector, especially for last-mile properties, she noted.
“Cap rates in most sectors appear to be inching up,” with the exception of industrial, Mar said.
While the industrial sector has been firing on all cylinders, the retail real estate sector remains under pressure, Green Street stressed. Mar pointed out that asset values for retail and industrial properties have moved apart by more than 25 percent in the last 12 months. “That’s pretty unprecedented,” she said.
Mar noted that market bid-ask spreads have widened, investors are more cautious and hesitant, operating fundamentals are slowing, and fears of rising interest rates persist. As a result, transaction volume has slowed this year, and would be even lower if not for the “extremely accommodative” debt market, she added.