Deal Activity Falls in January after Record December

Real Capital Analytics, New York, reported commercial real estate deal activity dropped significantly in January after a year-end surge in apartment, industrial and office sales.

Transaction volume fell 58 percent in January compared to a year ago. By contrast, December deal volume was 8 percent higher than a year before and exceeded $80 billion for the first time, according to RCA records.

Jim Costello

“December was the strongest month ever for apartment sales and the second-strongest for industrial property sales,” said RCA Senior Vice President Jim Costello. “For the office sector, December deal volume was at the highest level since 2019.” He credited December’s deal activity growth to the typical rush to close deals by year-end as well as a rebound effect from deals delayed earlier in 2020 due to COVID-19.

All major property types except for senior housing fell at significant double-digit rates in January, Costello said. “Price trends, however, suggest a more positive open to 2021,” he said, noting industrial sector cap rates, measured on a 12-month trailing basis, fell 20 basis points from a year earlier to average 6.0 percent and apartment cap rates compressed by 30 basis points to 5.1 percent in January.

The 100 largest global investors purchased less commercial real estate in 2020 than in 2019, but they sold less as well, Costello said. These large investors added a net $65.4 billion of real estate assets to their portfolios last year, 22 percent less than in 2019.

“Examining the behavior of this group can help to identify broader trends,” Costello said. “Investors who hold the most assets, after all, will see more potential deals and thus have more insight into pricing and capital flows. While as a group these investors added around one-fifth less commercial real estate to their portfolios in 2020, for some sectors the change in net additions was more pronounced.” He said the industrial sector saw “a mere” 11 percent drop off in the pace of net investment compared to 2019. Apartment sector net investment fell only 16 percent. Net office investment saw a 49 percent pace of decline from 2019.

“Dealmaking fell in 2020 both because of the uncertainty around the future path of the pandemic as well as the physical challenges of bringing together buyers and sellers and completing paperwork,” Costello said. “If the physical impediments to dealmaking were the same across all property sectors, then differences in deal activity should represent the degree of uncertainty for the future. The fact that net acquisitions fell more for offices than in other property sectors is a signal that the top global investors are more concerned about the future performance and current pricing of offices.”