The commercial real estate industry has been stabilizing over the past three quarters. After a period of historically high pricing, the industry saw prices drop another 0.3% in January, marking the ninth consecutive month of declines.
- Commercial real estate pricing dropped 0.3% in January
- There is an abundance of dry powder in the commercial market
- Investors are having trouble finding quality investment opportunities
“We edged off historic highs. The declines over the last three quarters have been mild and more of a stagnation than a decline,” Ten-X Senior Quantitative Strategist Chris Muoio said. “Prices have plateaued.”
As prices continue to fall, the industry’s aggressive fundraising efforts have left an abundance of dry powder — cash reserves set aside for investment purposes — in the market.
As of December, global real estate funds had a whopping $249B available in dry powder, up from 2016’s $237B available in cash reserves, Prequin reports. Much of this dry powder is concentrated on investment opportunities in North America and Europe.
About 65% of respondents surveyed by Prequin, in its 2018 Real Estate Spotlight report, said it is more difficult to find investment opportunities than it was a year ago. Survey respondents also said they are competing more frequently with firms that have large stockpiles of capital.
As a result, much of this year’s capital will go toward higher-risk investment opportunities, such as opportunistic and value-add assets, Prequin reports.
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