The commercial real estate market is shifting to an overpriced market, especially for core properties in the top markets, said real estate research firm Situs RERC, in a second-quarter report issued Tuesday.
“In the previous cycle (that ended in 2008), prices increased over true values by more than 50%, and it would not be surprising to see something similar in the current cycle,” the report said.
Commercial real estate transaction volume rose 23% for the year ended June 30, the report said, citing data from research firm Real Capital Analytics. Prices increased on a year-over-year basis for four out of five property types: up 10% for the industrial sector, 11% for both retail and apartments, and 19% for the hotel sector. Office prices were flat during the period.
Overall, commercial real estate value was higher than property prices in the second quarter, with a rating of 5.2 on a scale of 1 to 10, with 10 indicating excellent value compared to the price. Apartment and hotel sectors are somewhat overpriced with price ratings below 5, with 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 vs. 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.