Welcome to our inaugural Crexi Trends monthly report! In this monthly feature, we dive into the Crexi database to pull out relevant patterns and insights from the previous month with an eye towards the future.
This report covers trends among listings added to the Crexi marketplace in July, focusing on average price per square foot and cap rates. With this data in hand, we seek to arm investors, tenants, and brokers alike with actionable information to make the most well-informed commercial real estate decisions possible.
Multifamily bounces back after early-COVID concerns as the top-performing asset in a majority of markets.
Multifamily assets were the top performer in July, with new assets showing both a rise in average price per square foot and a contraction in cap rates. The average price per square foot for multifamily assets increased by 6.8% from June to July, while the average cap rate fell to 6.44%.
This positive performance continues multifamily’s Q2 growth trajectory. After experiencing a sharp drop in valuations from March to April, the multifamily sector witnessed a 25% increase in price per square foot leading into July. While some reports measured that ¼ of multifamily tenants would be impacted by mounting unemployment, the increased federal unemployment benefits and state and city moratoriums supported renters through the second quarter.
Despite an altogether anxious start to Q2, investor fears surrounding multifamily assets have been assuaged by a strong performance throughout the quarter continuing through July.
Office properties make modest recovery gains, despite hits from COVID-related closures.
Offices emerged as one of Crexi’s better-performing asset classes in July 2020, likely due to a need for increased square footage and flexible, satellite offices as corporations large and small adapt to post-COVID occupancy requirements.
Average asking rates for office inventory rose by 0.63% month over month from June to July and were on par with July 2019 levels. Though a meager month over month change, the July increase in average price per sq ft comes on the back of two additional months of consistent price increases, totaling an 11.89% climb since April lows.
Phoenix is one such market that’s enjoyed increasing asking prices and steadily compressing cap rates into July since the start of Q2, rising 16.10% since April. Orlando, too, saw an increase in office property performance with a month over month price per square foot increase of 6.83%, nearly a return to the city’s pre-pandemic levels in February.
Industrial saw a slight adjustment after a period of growth in the second quarter.
Industrial properties drove market inventory and demand nationwide, thanks to the shift towards e-commerce, local manufacturing, and logistics as a result of the pandemic. The industrial sector has proven resilient, climbing almost to pre-pandemic levels by the end of June, though it’s Q2 hot streak faded in July as average asking rates recoiled by 1.62%.
This drop is much smaller compared to that of retail assets, for example, which were more-so impacted by pandemic-related shutdowns and, in July, are still adjusting operations to the new normal.
This change is likely due to an abundance of availability on the market. Industrial was a sector leader before the pandemic, and in times of COVID, the sector was far less impacted by safer-at-home orders, often housing essential businesses. It’s possible that market saturation caught up with the asset class, accounting for the observed leveling off in valuations. Additionally, the average square footage per industrial property in July was slightly smaller than in June, which may also account for the price volatility.
Retail assets saw downward movement in July but improved overall since the pandemic’s beginning.
Understandably, retail businesses properties saw significant interruption due to COVID-19’s effect on consumer behavior, product demand, and retail store, factory, and logistics services availability. Non-essential business closures and safer-at-home orders forced many retail operations to cease in April, followed by gradual returns to work in June and July as states eased restrictions. As of July, retail had not yet experienced the consistent recovery we’ve seen in other asset types.
However, despite the decline in sales and anemic rates of consumer spending, the Paycheck Protection Program and SBA loans extended from the CARES Act kept many small businesses afloat during closures. Additionally, not all retail assets suffered equally: essential businesses such as grocery stores have seen a healthy variety of confident buyers and some of the highest historical transaction volumes in June and July 2020.
Retail assets on Crexi saw an average price per square foot growth of 2.57% from a low of $233.68 in April to $239.68 in July. However, some pricing fluctuations occurred from June to July, and June pricing rose to $257.34 before dropping to July’s rates. This is due to an increase in unpriced listings added in June, as 13.77% of new retail assets didn’t carry a price tag, indicating increased uncertainty surrounding retail valuations amidst the COVID-related demand shocks impacting the sector. Additionally, we saw corresponding cap rate growth in the retail sector from 6.51% in June to 6.67% in July.
Land parcels are gaining in popularity, getting bigger, and are increasingly unpriced.
Land is one of the most popular assets on Crexi in terms of buyer interest. Land parcels garnered a 47% increase in attention throughout Q2 and into July, surging past pre-COVID levels.
Despite attracting more prospective investors, land prices fell during Q2 and into July after seeing a 26.31% surge in April. Month over month, asking price per square foot decreased 8.48% from June’s $100.52 to July’s average of $92.00.
Top 10 States with Highest Average Asking Price per SF — July 2020
Disclaimer: The information in this article is based on Crexi‘s internal marketplace data and additional external sources. While asking price in many ways is a reflection of market conditions, variations in pricing are affected by changes in inventory, asset size, etc.