A Wall Street Journal article has noted April’s $39.4B in commercial property sales was 16% lower year-over-year after 13 straight months of increases.
Increases in both asset prices and prices and interest rates were cited as causes.
Sales in several sectors – particularly multifamily and industrial – had been increasing rapidly since the start of the pandemic. Rising demand and migration trends drove demand up and served as a hedge against inflation, according to a report from MCSI Real Assets. Even as late as March, CRE year-over-year sales were up 57%, making the speed of the transition appear “shocking,” according to MSCI representatives.
Firms and investors are concerned about the future, particularly the possibility of a recession and the inability of businesses and consumers to afford sharply increasing rents in the face of a downturn.
The specter of debt, which made many marginal deals possible, will necessitate greater diligence and selectiveness as well. As deals approach their five-year renewals, financing is becoming more tight, impacting both the pool of potential buyers and the overall number of transactions.
One potential upside, GlobeSt.com notes, is the tightening could lead to lower prices and, possibly, “a healthy distressed market.” (Source)