Reonomy recently expanded it’s coverage from NYC to the entire country, so we’ve decided to put that extra data to use with monthly reports for several major markets.
The following data is an aggregate review of Los Angeles County focused on Q1 2017. This will be closely followed by data reports for San Francisco and New York City.
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The biggest take-out is that the Los Angeles market is continuing to cool off.
Transaction volume in May was $1.09 billion, with 178 transactions valued at more than $1 million. In the first graph below, we see that this mirrors the volume from the several months preceding.
However, when placed in the context of comparing the first quarter, we see how much the LA market has cooled off this year. Q1 of 2017 is down 11.4% on 2016 Q4. While this may not seem substantial, when we compare the last 4 months to the 4 months before that the difference increases to 34.8%.
The golden question now becomes, is this going to develop into an ongoing downward trend or is it just a readjustment after a large Q4 in 2016? While we won’t attempt to answer that, we will take a closer look at the root causes of this trend.
So what is contributing to the decrease in volume?
Size of deal
As can be seen above, deal count has also been trending downwards. When we break this down further, it is clear that this decrease is weighted towards larger deals. Compared toQ4 2016, transactions exceeding $5M in Q1 2017 have declined 23.23% compared to 11.6% for transactions between the value of $1-$5 million.
How has this affected Reonomy users?
While the Reonomy platform has only been open to the public for a few weeks, a solid group of beta users allows us to track user behavior and compare any changes.
When performing property searches, users can filter based on sales history. In the county of LA, we have observed a trend of users searching for properties below a sales price of $5 million.
An analysis of transactions filtered by property type further sheds light on the root causes of the decline in CRE transactions.
Both nominally and as a proportion of all property type transactions, Q1 2017 was lower than any other quarter since 2014.
Once again the greatest decline in transaction volume has come from larger sized deals. While nearly every Multi-Family segment (right down to duplex’s and triplex) are down, Apartments (5+ units) are down most significantly at 35.7% for the quarter. (By comparison, the entire Multi-Family market’s transaction volume was $2.04 billion in Q1, a 26% decline from Q4 2016).
How has this affected Reonomy Users?
Once again, we have seen a similar change in behavior for Reonomy users searching within the Los Angeles market. Reonomy users are able to search by property type among dozens of other property characteristics such as property history and property records . While, we have not seen a significant decline in users searching for Multi-Family properties, the unit size that users are searching for has dropped off.
Despite all of this, large transactions are still occurring in the Multi-Family market. The chart below shows the 5 largest multi family transactions year to date.
You can explore these properties in more detail by trialling the Reonomy platform. Below are the results for 1625 W Pacific Coast Hwy Wilmington, CA when searched using Reonomy. Built in 1987, this commercial property contains 257 units across a total lot area of 520,421 SF.
In some respite for the multi-family market, May broke all these trends. It was the largest month by total transaction volume since November 2016. Compared to April, transaction volume was up 67.8%. This has made predicting whether this is a downturn or readjustment all the more difficult, and will increase the importance of data coming out in July and August.
By contrast, the Office market performed relatively well. Sales volume for Q1 was down on Q4 2016, but remained larger than any other quarter in 2015 and 2016. The office market looks to fit the narrative that there is some readjustment from a large Q4.
This becomes clear when looking at the number of transactions exceeding $1M. Year to date, there have been 162 office transactions of such size, an increase of 31.8% on the same period last year.
From those deals, the largest 5 office transactions were spread out and were as follow;
Once again you can explore these properties by trialing Reonomy, with 1299 Ocean Ave Santa Monica displayed below.
The Retail market experienced an entirely different trend than the other property types outlined above.
Retail was the only market that saw an increase from Q4 2016 to Q1 2017.
Again, in contrast to the rest of the commercial real estate market, this was led by an increase in the number of large deals. For transactions larger than $10M there was a 161% increase quarter to quarter.
That increase was led by the 5 following retail transactions.
How has this affected Reonomy Users?
Unlike the other sectors, Reonomy users did not follow the same pattern. Search via Retail characteristics remained consistent throughout the year.
So what does this all suggest?
As outlined at the start, the decline in sales volume in Q1 2017 shows a cool down occurring. This decline is inflated from a large Q4 in 2016,
This decrease in sales volume, especially in larger-size deals, was most acutely felt in the multi-family sector.
The data which we will release for July will be invaluable for Commercial Real Estate Professionals in identifying whether these trends continue.