The capital markets environment remains relatively healthy with high levels of transaction and mortgage lending activity, and fairly stable pricing. Yet after years of rising volumes and value growth, there is some cooling in certain aspects of capital markets.
The Q3 direct investment volume of $115 billion re ected a very small drop of 2.1% from the Q3 2015 level. Year-to-date volume of $343 billion is down 9.1% from the same period in 2015. However, total investment volume for 2016 will very likely make it the third highest year of acquisitions activity after 2007 and 2015.1
U.S. real estate remains attractive to foreign buyers. Cross-border purchases reached $17 billion in Q3, a 21% increase over Q3 2015’s total. However, the $44 billion year-to-date total is down 27.9% from 2015. Asia is the leading global region for foreign investment this year at 42% of the total.
Pricing metrics do not reveal a totally clear picture. The September CPPI for repeat-sales transactions rose 5% year-to-date, indicating modestly rising values. However, pricing data does not re ect transactions that are pulled from the market due to the bid-ask gap.
Investment performance returns are still largely favorable but declined again in Q3 2016 due mostly to lower levels of appreciation (not income). The NCREIF Property Index registered a total return of 9.2% for the year ending Q3 2016, compared to the 2010-2015 average of 12.3%.
Debt capital remains widely available and at historically low rates. However, the CMBS market is still performing under last year’s level and construction nancing is becoming more dif cult and expensive to obtain. The year-to-date lending volume rose approximately 6.5% over 2015.
Mortgage delinquency statistics re ect the healthy status of most commercial mortgages. In Q3 2016, agency, life company and bank delinquency rates remained low. CMBS delinquencies, which had been trending higher this year, were stable in Q3.
In the CMBS world, the majority of 2006- and 2007-vintage loans are maturing and being paid off without problems. However, a small and growing number of maturing loans this year and next— primarily in the of ce and retail sectors—will face re nance challenges.