Situs RERC – Regional Value vs. Price – 2Q 2017

During second quarter 2017, Situs RERC asked regional investment survey respondents to rate the major property sectors on value vs. price in order to get a feel for how values compare to prices in the West, Midwest, South and East regions. The ratings are from 1 to 10, with 10 indicating that value greatly outweighs price, and 5 indicating that value is equal to price.

Situs RERC’s value vs. price rating for overall CRE was highest in the South region, as respondents saw the most value relative to price during second quarter 2017 (see Exhibit 1). Among the individual property sectors, the industrial sector offered the most value compared to price in every region except the South, where respondents indicated that the office sector had the most value for investors compared to price. In contrast, respondents suggested that the retail sector was slightly overpriced relative to value in the East, Midwest and West regions, though the retail sector appears to be faring better in the South region.

Exhibit 1:

In the West region, the value vs. price rating for overall CRE indicated that values supported prices in second quarter 2017, as Situs RERC’s regional investment survey respondents saw even more value for investors relative to price. While the industrial sector offered the most value relative to price among the individual property sectors, the office and apartment sector ratings showed that value outweighed price in the second quarter. For the hotel sector, the rating indicated that value equaled price. The rating for the retail sector fell below 5.0, where value equals price, as respondents considered the sector slightly overpriced relative to value.

OPPORTUNITIES IN THE WEST (from a value vs. price perspective):

  1. Industrial – Very Good
  2. Office – Very Good
  3. Apartment – Good
  4. Hotel – Fair
  5. Retail – Poor

The Midwest was the only region where respondents considered overall CRE values to be equal to prices during second quarter 2017. The industrial sector value vs. price rating indicated that value greatly outweighed price. The apartment sector rating was slightly lower, though respondents still considered the apartment sector to be fairly priced compared to values. For the office, retail and hotel sectors, respondents reported that the ratings hovered around 5.0, where values were equal to prices.

OPPORTUNITIES IN THE MIDWEST (from a value vs. price perspective):

  1. Industrial – Good
  2. Apartment – Good
  3. Office – Fair
  4. Hotel – Fair
  5. Retail – Fair

Among the four regions, the South region received the highest value vs. price rating for overall CRE, indicating that respondents felt that CRE offered the most value relative to price. As such, values supported prices for overall CRE during second quarter 2017. Among the majority of individual property sectors, value vs. price ratings indicated that values outweighed prices. The exception to this was the apartment sector rating, which showed that values were equal to prices. The office sector offered the most value relative to price compared to the other property sectors, followed closely by the industrial and retail sectors. For the hotel sector, the rating indicated that values only slightly outweighed prices during second quarter.

OPPORTUNITIES IN THE SOUTH (from a value vs. price perspective):

  1. Office – Very Good
  2. Industrial – Very Good
  3. Retail – Very Good
  4. Hotel – Good
  5. Apartment – Fair

East region respondents maintained that overall CRE values outweighed prices during the second quarter of 2017, as the value vs. price rating for overall CRE was unchanged quarter-to-quarter. The industrial sector continued to offer the most value for investors relative to price. While the ratings for the office and apartment sectors indicated that both of these sectors were fairly priced relative to value, the hotel sector was slightly overpriced compared to value. For the retail sector, respondents remained concerned about overpricing relative to value.

OPPORTUNITIES IN THE EAST (from a value vs. price perspective):

  1. Industrial – Very Good
  2. Office – Good
  3. Apartment – Good
  4. Hotel – Fair
  5. Retail – Poor

To download this as a PDF, click here. For more information, please contact Ken Riggs.