CRE Volume Bounces Back After First Quarter Slowdown

While commercial real estate deal volume dropped in the first quarter, it bounced back in the second, according to new reports.

The report said second-quarter deal volume rose 24 percent quarter-over-quarter and 10 percent year-over-year to $136.8 billion.

Ten-X, Irvine, Calif., reported the apartment and office sectors saw the most deal volume increases, growing 19 percent and 29 percent year-over-year, respectively. These two sectors contributed to more than 15 percent of the total second-quarter deal volume, which equaled $80.7 billion, the company’s Commercial Real Estate Volume & Pricing Trends report said.

“A slowdown in the previously thriving mergers and acquisitions market prompted cooling in total first-quarter CRE transaction volume,” said Ten-X Chief Economist Peter Muoio. “However, there was a resurgence in the second quarter of the year with the apartment sector leading the way in overall deal volume, totaling more than $43 billion in the second quarter.”

But Ten-X said commercial real estate pricing growth has remained largely “stagnant” so far in 2019. “Despite remaining at its highest levels since 2017, the growth of pricing amongst all five CRE sectors has plateaued,” the report said, noting overall CRE pricing is now 0.1 percent below its year-ago level. “Although small, this demonstrates the first annual decline since mid-2018,” Ten-X said.

Muoio cited several reasons for the property price growth pause, “with the trade war with China and escalating tariffs that affect the industrial sector and the recent yield curve inversion sparking fears of a recession and spooking investor sentiment across all CRE segments being key factors,” he said.

Muoio said CRE cap rates have not changed since the first quarter. “Despite the decline in interest rates, cap rates are holding fast, suggesting cap rate spreads are on the rise,” he said. “Cap rate spreads have widened in the past few quarters, reflecting worsening investor sentiment across commercial real estate. This is likely due to the uncertainty brought on by the U.S.-China trade war and recent yield curve inversion, which has increased investor unease for a potential recession.”