Certain parts of the commercial real estate marketplace may have reached their zeniths, according to real estate research firm Situs RERC.
Situs recently published a second-quarter report which stated that commercial real estate is quickly becoming overpriced, especially for core properties in the largest cities.
“In the previous cycle (that ended in 2008), prices increased over true values by more than 50 percent, and it would not be surprising to see something similar in the current cycle,” the report said.
The report, which used data from Real Capital Analytics (RCA), showed that prices increased on a year-over-year basis for four out of five property types: up 10 percent for the industrial sector, 11 percent for both retail and apartments, and 19 percent for the hotel sector, although office prices remained flat.
Situs then polled investors to score property types on a scale of one to ten, with ten indicating excellent value compared to the price.
Apartment and hotel sectors were regarded as somewhat overpriced with ratings below 5: apartments at 4.6, the same rating as in the first quarter and the second quarter of 2014, and hotels at 4.8, down from 5.4 in the first quarter and 5.7 in the second quarter of 2014. Retail was the only sector with an increased value against the price rating in the second quarter, up to 5.5 from 5.1 in the first quarter and 4.9 in the second quarter of 2014.
Yet, in spite of the perception that property pricing is getting too high investors keep piling into real estate. The RCA data showed commercial real estate transactions increased by 23 percent for the year ended June 30.
The findings are mirrored in a recent report from global real estate services company DTZ which found continued demand for real estate will see global investment volumes this year increase by 22 percent to reach levels close to their previous 2007 peak of $791 billion.