In science and engineering it’s the difference between what calculus calls the first and second derivatives: how fast something is changing and then the shift in that rate of change. For commercial real estate properties overall, April was good news in the former and, depending on the view, less happy tidings for the latter, according to Real Capital Analytics.
The RCA CPPI National All-Property Index from MSCI was up 17.9% year over year in April. Industrial (26.0% growth) and multifamily (23.0%) were the leaders. Retail saw an 18.4% boost. Office, up by 11.8%, varied by the type of location, with central business district properties rising 12.3%, significantly higher than the 10.3% lift for suburban. Property prices in general were up 19.8% in major non-metro areas compared to 11.8% in major metros.
But that’s the historical look. That second derivative—the rate at which change gets larger or smaller—is the language of the present gazing ahead into the future as industry professionals try to prepare for it. On that front, the news could be disappointing or actually good, depending on where you stand.
April showed the “third consecutive month of decelerating annual growth rates,” according to the analysis. “The index rose 0.5% in April from March, suggesting only a 6.3% annualized pace of growth.” (Annualized rate of a month’s change isn’t that number multiplied by 12 but a slightly more complex formula, as the Federal Reserve Bank of Dallas explains.)
Broken out by property type, both industrial and multifamily grew 1.3% between March and April, suggesting about a 16.8% annual growth rate, down from the 26% and 23% year-over-year figures. Retail’s 0.6% month-over-month would translate into a yearly figure in the mid-7s, about the same for all office assets.
None of these numbers are allergens that should set off sneezing bouts. This is where the road forks, depending on where investors, operators, and owners stand, according to a GlrobeSt.com analysis. Slowing expansion of price growth means conditions might be leveling off, which could moderate cap rates and help make investments and projects more predictably affordable. Also, if prices level off, rents might as well, which could offer housing relief and dissuade governments from pursing rent control regulations. A leveling of price increases could also help offset financing costs.
All that said, price growth is good for owners looking to sell property, presuming that there are buyers that will pay the higher asking prices.