CRE Prices Slip, Sales Volume Tumbles
Commercial real estate asset prices dipped in July while sales volume fell significantly, said Real Capital Analytics and CoStar Group.
Real Capital Analytics, New York, said illiquidity plagued the commercial real estate market in July, “with volume across the property types falling at high double-digit rates.”
Total U.S. sales activity fell nearly 70 percent compared to July 2019, RCA said, making July the fourth consecutive month with falling dealmaking. “However, the monthly sales level is still trending above the lows set in 2009 during the Global Financial Crisis,” the report said.
CoStar Group, Washington, D.C., reported composite pair volume totaled $50.2 billion through the first seven months of 2020, down nearly 39 percent from the same period in 2019. “Investor caution and physical challenges in transacting deals remain at heightened levels due to the pandemic,” CoStar said. “The decline in investment activity was felt more strongly in the investment-grade segment of the market, which is influenced by larger, higher-value properties.”
Other liquidity measures indicated a widening gap between asset sellers and potential buyers, CoStar noted. The average time on market increased 2 percent during the 12 months ending in July to 204 days. The sale-price-to-asking-price ratio equaled 92 percent, the widest spread since 2017–although not as wide as the 83-84 percent gap seen at the bottom of the last market cycle in 2010 and 2011.
CoStar reported the share of properties withdrawn from the market by discouraged sellers increased 1.4 percent to 28.2 percent over the 12 months ending in July.
Real Capital Analytic’s National All-Property Index dipped 0.2 percent in July, dragged down by declines in suburban and central business district office prices as well as retail prices.
CoStar’s price index largely held steady but remained lower than the “pre-pandemic high” seen earlier in 2020. The research firm’s value-weighted index, which reflects larger asset sales common in core markets, was relatively flat in July but was down 1.4 percent from its April peak. The equal-weighted index that tracks the more numerous but lower-priced property sales typically seen in secondary and tertiary markets also showed no change from June but was down 1.8 percent from April.