Interest rates may be at record lows, but that is not enough to spark CRE sales activity.

Normally, low interest rates would stimulate commercial real estate investment, but that isn’t the case in 2020, according to Real Capital Analytics. 

RCA’s US Capital Trends shows that these low rates have not resulted in new acquisitions. National sales activity fell 68% year-over-year in August. Transactions are down 36% for the year to date.

In a separate report Reonomy reports similar findings, namely that through July 2020 deal volume decreased 37%, despite the availability of cash equity. But available and favorable financing has not been enough to move the needle for these buyers. They are afraid to step up to higher prices in the face of struggling tenants and a hazy picture of future income trends, Jim Costello, senior vice president of Real Capital Analytics, wrote on the RCA Insights blog.

While the 10-year US Treasury has averaged less than 1% every month since March, commercial mortgage rates have barely moved, averaging 3.8% in that time frame, Costello said. A year ago commercial mortgage rates averaged 4.7%. 

The lenders themselves are also acting with some element of caution in the current environment, Costello added, noting that spreads between commercial mortgage rates and the 10-year US Treasury are at the highest levels seen over the last five years. Also, figures in the US Capital Trends report show that some of the most aggressive lenders in 2019 have started originating loans with lower LTVs in 2020.

For its part Reonomy observed that lenders’ lack of appetite for commercial assets has impacted price discovery, further deterring transaction volumes. This may trend may continue to negatively impact transaction activity for several quarters, Reonony said.