CRE Asset Classes Post Increase in Asking Rates, Pricing In Sept.

Article originally posted on Globe St. on October 15, 2020

The commercial real estate market is showing distinct signs of recovery. In September, asking rents increased by 3.5% across asset classes and price per-square-foot rose by 7%, according to research from CREXi’s national commercial real estate report.

The office and retail sector were two surprising drivers in asking rents for the month. Office asking rents increased 4.1% month-over-month—double the increase in asking rents from August, according to the report. Retail asking rents increased 4.2% in September over August, which had only modest gains. Restaurants in particular have started to recover after months of closures and encumbering restrictions. Isolating for restaurants only, asking rents increased by 5.83% in September.

The retail sector also drove gains in price per-square-foot for commercial properties. In August, price per square foot for newly listed commercial properties increased by only 1.3%, and in September the gains jumped to 7.15% across asset classes. Retail assets alone increased by 7.95% for the month.

Industrial also drove the increase in asset pricing. The price per-square-foot for industrial assets increased 17.9% month-over-month in September. This is the first time the asset class has seen pricing gains above 7% since February. As a result, industrial cap rates also compressed in September to 6.3%.

While office and retail—as well as industrial—helped to drive gains in commercial real estate, multifamily had a lackluster month. In September, price per-square-foot fell .64% month-over-month. This decline comes off of two consecutive months of 6%-plus growth in multifamily and four consecutive months of cap rate compression. In addition, multifamily rent collections are becoming more challenging for property owners. The decrease in pricing doesn’t necessarily indicate a reversal in multifamily fundamentals, but it is enough to raise an eyebrow. CREXi’s report suggests that investors are looking at other opportunities, especially in asset classes that show growth potential after months of declines.