Posted: April 9th, 2024
In the realm of commercial real estate, the past year witnessed a substantial and concerning decline in deal volume, echoing a historical downturn reminiscent of the Global Financial Crisis. MSCI Real Assets' latest data reveals a stark 51% year-over-year decrease in sales, marking a plunge not witnessed since the aforementioned crisis.
Across all property sectors, there was a noteworthy double-digit reduction in transaction volume, with the apartment sector leading the downturn with a significant 61% drop. The office sector experienced a substantial 56% annual decline, while the industrial and retail sectors saw declines of 55% and 38%, respectively. Interestingly, despite the overall decline in the retail sector, entity-level deals remained relatively elevated, with the market decrease attributed to a slowdown in individual asset sales, down by 44%.
Accompanying the decline in deal volume, prices also experienced a decrease from 2022, although the pace of this deceleration has been moderating. The RCA Commercial Property Price Index (CPPI), maintained by MSCI, recorded a 5.9% annual drop but exhibited a 1% increase quarter over quarter. Notably, the industrial sector stood out with a 4.3% annualized growth pace from the third quarter, contributing to its resilience in nominal prices, the only major property class to witness both year-over-year (up 0.5%) and quarter-over-quarter (up 1.1%) gains.
Despite the seemingly grim news, it's crucial to contextualize the situation. The unprecedented drop of over 50% in deal volume last year was, to some extent, artificially inflated by the market's recent peaks. Considering the average annual pace of sales volume from 2015 to 2019, the 2023 deal volume was down by 32%.
As a mortgage broker, I emphasize the importance of staying informed about market dynamics. While challenges exist, understanding the nuances of the commercial real estate landscape can guide informed decisions. If you are contemplating commercial property transactions or exploring investment opportunities, now is the time to assess and strategize. Connect with us to discuss personalized solutions that align with your commercial real estate goals and navigate through these challenging times.
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