Commercial real estate investors can expect property prices to trend downward soon, according to Green Street Advisors, a real estate research firm headquartered in Newport Beach, California. “Value appreciation has practically stopped in aggregate,” said Joi Mar, senior analyst at Green Street. However, sectors vary. Industrial—especially last-mile industrial—has seen rising values, and malls have seen big losses, she noted. Prices on industrial assets recorded an 11% gain year-over-year, while mall valuations have dropped by 15%, resulting in a 25% spread between them over the past 12 months. “That’s pretty unprecedented,” Mar said.
Cap rates have been inching up over the past year for all sectors except industrial, according to Mar. The bid-ask spread has widened, investors in general have been more cautious and hesitant, operating fundamentals have softened a bit, and there is a fear of rising interest rates. Transaction volume is also down, but would be even lower if debt capital was not so widely available.
Today, investors can expect returns of around 6%, on average, for assets in most core sectors, and a little bit higher returns for niche sectors, said Andy McCulloch, managing director at Green Street, noting that the firm’s return forecasts focus on un-levered returns for long-term holds.