Given the up and down nature of the commercial property industry has been running lately, the smart money would say that investors are starting to look elsewhere, right?

Wrong.

A new study published by Landauer Associates, in conjunction with the Commercial Investment Real Estate Institute, shows that commercial property investment has climbed to the second highest level in the past year and a quarter.

The groups’ sampling of $7.3 billion in market activity, as published in the CCIM/Landauer Investment Trends Quarterly, represents an 85% increase over the same sample period in 1997.

Further evidence of the strong market is reflected in a record average transaction dollar amount and strong capitalization rate.

For the first time since data for the CCIM/Landauer report was published in first quarter 1995, the average deal price for all property types exceeded $20 million. Also, capitalization rates remain aggressive at 9.6%.

"The decline in REIT stock prices and dramatic fluctuations on Wall Street prompted many observers to believe commercial investors were in a retreat mode," said CIREI President Allen M. Feltman, CCIM. "Our data continue to indicate that the market is very strong and not in the early stages of a significant slow down.

"Actually, commercial real estate is well dispersed across the United States, with more than 90 percent of investment property still in so-called private ownership," he said.

The study also found that for the first time in the past 15 quarters, retail properties claimed the highest percentage of investment dollar volume at 36.1%, edging out the long-time leader, office properties, which tallied 33.1%.

Fears of potential overbuilding in the months to come were dispelled somewhat by a low number of land transactions, the fewest since third quarter of 1995. Land sales accounted for 16% of property transactions.

The southeast region (Kentucky, West Virginia, Virginia, Tennessee, North Carolina, South Carolina, Mississippi, Alabama, Georgia, and Florida) retained its leadership in terms of market share with 22% of all transactions nationwide.

The Pacific region (California, Oregon, and Washington) led all regions with nearly 30% of the total national dollar volume.

The hotel sector continued to lose market share, capturing 7.4% of the deal count and 6.3% of the dollar volume – both significantly below the peaks experienced in the hospitality industry in late 1996 and early 1997.

For the second consecutive quarter, REITs confounded popular expectations by leading all buyers with a 37% share of total dollars invested.

The CCIM/Landauer survey results are based on a broad-based sampling of third-quarter 1998 transactions valued at $7.257 billion.