U.S. commercial real estate investments plunged this past October by a double-digit rate, but last month’s sales-activity level still registered as above average, Real Capital Analytics (RCA) reported.
October saw $36.2 billion in commercial-property transaction volume, a year-over-year drop of 30% that seems staggering at face value. This autumn has resembled a roller coaster in regard to the changes in annual sales volumes, with October preceded by a September gain of more than 50% and an August decline of 54%. According to RCA, October’s decrease in transaction volume is more indicative of the above-average activity seen in the past few years than it is of a specific weakness this year.
In fact, for the year as a whole through October, deal activity is 4% behind the pace set in 2018. Last year was notable for its strength in portfolio and entity-level sales, with acquisitions of Westfield and GGP boosting the scale of “megadeal”-type transactions. And although the domestic market has seen some of these deals in 2019 — especially in the industrial sector — portfolio and entity-level sales activity was down 34% year over year in October and is 17% behind the pace set through the first 10 months of 2018.
On the flipside, individual asset sales have accounted for much of the market strength thus far this year. While single-asset sales in October were down 28% year over year, the corresponding volume for the first 10 months of 2019 is 2% higher than the pace set for the same period in 2018. On a sector-by-sector basis, industrial, apartment and office properties are each recording sales volumes that are ahead of their 2018 paces.
In particular, office sales have had concentrated growth in central business districts rather than suburban areas, suggesting commercial real estate investors are changing their attitudes toward risk in this sector. Suburban offices, as well as retail and hotels, saw poor price performance during the last downturn, leading investors to reevaluate their moves this year in those three sectors due to concerns of a possible recession. As a result, each of those sectors has seen a retreat in deal activity thus far in 2019.
In spite of persistent recession fears, however, overall commercial-property prices were up 7.5% year over year in October, while cap rates were primarily unchanged during the month. The largest cap-rate shift was seen in the industrial sector, which posted an annual decrease of 10 basis points.
