Chart of the week

Commercial real estate market sees continued price appreciation in 2019

See what factors have driven an increase in commercial real estate prices – across all sectors – and how the CRE market may develop going forward.

July 19, 2019 | 2 minute read
  • In May, U.S. commercial real estate (CRE) prices saw their largest monthly climb in nearly 4.5 years, fueled by a surge in the multifamily/apartment and industrial sectors. On an annualized basis, CRE prices rose approximately 7.2%, again thanks to double-digit growth in the industrial sector.1
  • May’s activity was well above the YTD pace, which has been characterized by continued price growth, though at a generally slower rate than in recent years. Specifically, CRE markets have drawn strength through much of this cycle from the prolonged low-interest rate environment along with more-conservative underwriting standards enhanced by post-crisis regulation.
  • Certain sectors have also benefited from supportive secular trends. Industrial, for example, has seen extraordinary growth driven primarily by e-commerce and the related demand for distribution and logistics centers.
  • As the chart shows, however, each sector across the CRE market – including retail, the focus of significant concern and job loss – has seen prices rise to varying degrees in recent years, including through the first months of 2019.1
  • Looking forward, rent growth will likely be the primary driver of total returns as cap rates remain near their historic lows. Yet this year’s price activity serves to highlight the underlying healthy backdrop that continues to support the CRE market.

  • Bloomberg, as of May 31, 2019 (latest data available).

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