Q1 2017 CRE investment volume of $94.8 billion was down by 18.3% from the $116.0 billion recorded in Q1 2016. The drop is primarily due to a decline in entity and portfolio deals. Individual-asset sales—the most accurate indicator of investment momentum—were down by 9.5% from a year ago.
Canada replaced China as the largest foreign investor in U.S. real estate in Q1, accounting for approximately 26% of total cross-border volume. Singapore had another 23% of total market share, followed by China at 12%.
The Moody’s/RCA Commercial Property Price Index (CPPI), based on repeat sales transactions, indicates that asset pricing started to stabilize in Q1. The all-property index was 216 in February, on par with the 217 recorded in November 2016.
The NCREIF Property Index (NPI) total return continues to moderate as the real estate cycle has matured and capital appreciation has fallen. Total return for the year ending Q1 2017 was 7.27%, underperforming both the S&P 500 and the S&P U.S. REIT Index.
CMBS volume fell by 21.2% in Q1. Banking volume fell by a similar amount (-24.7% in Q4 2016). Life insurance companies remain active in the market with new 2017 lending allocations.
Spreads for fixed-rate loans have compressed by 15 to 20 bps across the capital stack by life companies, CMBS lenders, debt funds and the agencies. The compression in spreads has not occurred in bank loans and those from other floating-rate lenders.
There are some difficulties in securing construction financing particularly for speculative deals. This is primarily due to oversupply concerns and impact the new regulations.