Mid-Year 2016 U.S. Capital Flows Report
Volume Declines Obscure Strong Investor Demand
Commercial real estate capital flows for the first half of 2016 show that transaction volumes are still quite healthy and pricing is aggressive by historical standards. National volumes may not be as high as in 2015, which nearly matched the record pace of transactions in 2007, but sales and prices in many markets and product types are still at the highest levels ever recorded.
- Overall transaction volumes for the first half of 2016 (1H 2016) are down 23% from the second half of 2015 (2H 2015) and down 16% from the first half of 2015 (1H 2015). Much of the decline has been in portfolio and entity purchases, while individual property transactions have been strong.
- While the quantity of transactions may be down, investment capital flows remain robust. Investment volume is up 15% over the 2014 level, which had served as the high-water mark until 2015.
- The composition of transactions by property type has changed significantly in recent years. Office buildings and hotels account for smaller shares than in the past while the multifamily share has surged.
- Despite the slowdown in sales activity this year, pricing remains strong and most sectors saw increased values per square foot in 1H 2016 over 2H 2015. Office property, industrial and hotels saw the largest price gains while multifamily and retail prices lagged.
- Through the end of the year and into 2017, we expect prices to continue rising and investor interest in the U.S. property markets to remain strong while transaction volumes regain traction. The relative strength and stability of the U.S. economy is likely to attract more offshore capital to our markets and record-low interest rates will continue to make real estate a compelling option for investors. However, it will be important for investors to keep an eye on risks and avoid chasing yield as the growth cycle continues.