Second Quarter 2017 Suburban Maryland Commercial Real Estate Sales Trends

I cover a number of the suburban Washington, DC counties in Maryland with my consulting services.  These counties include Anne Arundel, Frederick, Howard, Montgomery, Prince George’s and Washington, or from Annapolis to Hagerstown.

Through the use of the Costar service, I have conducted a survey of the commercial real estate markets in these counties involving recent sales transactions and longer term sales trends.

Suburban Washington DC Office Market (Maryland suburbs)

In the second quarter of 2017 there were 64 sales identified by Costar involving 1.76 millioon square feet.  The average sale price was $111 per square foot.  The average capitalization rate among the transactions where such data was available was 7.3% wth a range from 6.4% to 8.0%.

The largest transaction involved the Shady Grove Plaza in Montgomery County, which sold for $24.76 million in May, or nearly $137 per square foot.

This compares with a far more active first quarter where there were 121 sales involving just over three million square feet.  The average price was $113 per square foot and the average cap rate was 8.2%.

In the year ago period, there were 145 sales totaling almost 4 million square feet.  The average sale price was $163 per square foot and the average cap rate was 8.9%.

Over the last five years, the average sale price has been $159 per square foot with an average cap rate of 8.0%.

5yearaverageofficesaleprice

As can be seen by this graph, the average sale price each quarter over the last five years is actually quite random in the office market.  However, it does appear that the current trend is somewhat lower, as activity has slowed.  This is something worth keeping an eye on for the foreseeable future.

5yearaverageofficecaprate

This graph indicates overall cap rates for each quarter over the last five years.  Over the last two years, the range has been somewhat narrow between just under 7% to just under 9%.

 

Suburban Washington DC Retail Sales (Maryland suburbs)

In the second quarter of this year there were 78 sales totaling 1.11 million square feet.  The average sale price was $231 per square feet, and the average cap rate was 7.5% with a range from 6.1% to 8.5%.

The largest transaction involved Largo Towne Center in Upper Marlboro, Prince George’s County.  This property sold in June for nearly $56 million, or $227.53/SF for the 249,905 square foot shopping center.

In the first quarter there were 140 sales involving over 2.6 million square feet with an average price of $178 per square foot.  The average cap rate was 6.6%.

In the year ago period, there were 163 sales with an average price of $147 per square foot and an average cap rate of 7.0%.

Over the last five years, the average price has been $202 per square foot with an average cap rate of 7.0%.

5yearaverageretailsaleprice

Similar to the office market, there is no real trend in prices over the last three years, after a clear up trend in the prior two years.

5yearaverageretailcaprate

The overall trend in cap rates has been slightly higher since the five year low was set in early 2015.

 

Suburban DC Industrial Sales (Maryland Suburbs)

In the second quarter of 2017, there were 40 sales involving almost 1.9 million square feet with an average sale price of $86 per square foot.  The average cap rate was 7.6% with a range from 6% to 8.7%.

The largest transaction was the 475,000 square foot warehouse located at 9325 Snowden River Parkway in Columbia with sold for $29.2 million, or just over $61 per square foot.

In the first quarter there were 43 sales totaling just under 900,000 square feet.  The average price was $98 per square foot and the average cap rate was 8.5%.

In the year ago period there were 61 sales totaling over 2.2 million square feet with an average price of $83 per square foot and an average cap rate of 8.0%.

Over the last five years, the average sale price has been $73 per square foot with an average cap rate of 6.8%.

5yearaverageindsaleprice

Unlike the office and retail markets, there has been a clear up trend in the price of industrial properties over the last four years with the first quarter of this year seeing the highest average in the last five years.

5yearaverageindcaprate

While sale prices have climbed, cap rates have shown a choppy trend to the upside.

 

Washington DC Suburban Apartment Market (Maryland Suburbs)

In the second quarter of this year, there were 13 sales with an average price per unit of $123,303.  The average cap rate was 6.4% with a range from 5.6% to 7.6%.

The largest transaction was The Montgomery Apartments in Bethesda, which sold for $63,500,000 in June, or $165,284 per unit.

In the first quarter, there were 31 sales with an average price of $162,997 per unit and an average cap rate of 7.7%.

In the year ago period, there were 30 sales with an average price of $166,453 per unit and an average cap rate of 6.3%.

Over the last five years, the average sale price has been $142,909 per unit with an average cap rate of 6.6%.

It is noted that this market generally involves larger, institutional grade properties with at least 100 units.  This market does not have many smaller properties such as what may be found in Washington, DC and Baltimore City.  As such, there are fewer sales due to a smaller supply of potential buyers.

5yearaveragemfsaleprice

Over the last six quarters, the trend in price per unit has clearly been to the downside, reversing the trend of the prior two years.

5yearaveragemfcaprate

After hitting a multi-year peak in the first quarter, the average cap rate fell back into the middle of the range of the last five years.

 

Final Thoughts

In all four sectors, the pace of sales slowed.  The rate of slowing range from modest in the industrial sector to significant in the office and retail sectors.  For whatever reason, investors have clearly expressed some caution over the last three months.  Whether this becomes a new trend will become more evident as the year progresses.