Commercial deal volume continues prolonged slide in third quarter

Nationwide transaction activity down 53% year over year, MSCI reports

Commercial real estate deal volume, which had plummeted at high double-digit percentages leading into the third quarter, continued its recent form from July to September and fell 53% year over year, according to MSCI Real Assets.

The drop placed third-quarter commercial property transaction volume at $89.2 billion, with the multifamily and industrial sectors leading the way at $30.1 billion and $21.1 billion in Q3 deals, respectively. With the exception of industrial, deal volumes in every sector remain muted compared to historic levels and even more so compared to last year.

Volumes were uncharacteristically high from second-quarter 2021 through third-quarter 2022. To illustrate the point, even industrial and multifamily were down 45% and 62%, respectively, between Q3 2022 and Q3 2023.

Among all asset classes, it was retail that proved most resilient during the third quarter, backtracking by 31% year over year. The sector was buoyed by merger-and-acquisition deals, without which deal volume would have fallen at a similar clip to other property types. Retail property deal volume, at $14.9 billion during the quarter, surpassed the $10.6 billion in office sales due to two entity-level deals.

The beleaguered office sector remains mired in a lull, with individual asset sales barely exceeding those for retail: $9.2 billion in single-asset office deals, compared to $9 billion for retail. The third quarter was the weakest for office deal volume since the opening quarter of 2010, and prices are sliding to reflect the sector’s struggles.

The RCA Commercial Property Price Index (CPPI) office reading fell 8.8% year over year in the third quarter — a noteworthy drop, although not enough to bridge the gulf in price perception between buyers and sellers to jumpstart more deals. MSCI estimated that, assuming buyers and sellers meet in the middle to agree to a sale, office prices would have needed to fall 16.8% to clear long-term sales-volume averages during the third quarter.

There are some rosy details to MSCI’s report. For one thing, price declines across commercial real estate have been moderating. Combined with some recent sales trends, this could lead an optimist to believe that the market has already bottomed out, according to MSCI. (In all fairness, MSCI also suggested that a pessimist could review many of the same figures and declare that the market is just “waiting for the next shoe to drop.”)

Prices across all commercial real estate asset classes are down 42% year over year, but were essentially flat quarter over quarter due to resiliency in the industrial sector. Prices for industrial assets actually rose from Q2 to Q3.


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