Small Property Sales Doubled Last Year
The multifamily and industrial sectors were primary drivers of growth in the smaller property sector.
Sales of smaller commercial properties — defined as those valued at between $5 million to $25 — million doubled last year, according to new analysis from Green Street.
The multifamily and industrial sectors were primary drivers of growth in the smaller property sector: in 2021, sales of what Green Street terms “beds and sheds” accounted for 58% of all smaller sales, up from 50% in 2019.
Experts maintain that the boom in smaller property sales is being driven by similar factors to those pushing up investment sales in the over $25 million category.
“Billions of dollars of pent-up equity from domestic and foreign buyers; interest rates that, while set to rise, remain historically low; and marketing campaigns touting real estate’s historic role as a hedge against inflation,” the report notes. “The upshot: Sales are expected to rise again in 2022.”
David Gaines, a JLL managing director and leader of its private-capital group, told Green Street that while volume may not double again, it’s possible that it will tick up from $80 billion to $100 billion. “That’s a marginal increase year over year, but you’re talking about going from $40 billion to $100 billion in 24 months,” he said. “That’s a significant impact.”
Private capital saw nearly $81 billion in property sales across the five major asset classes last year, up from $40.43 billion the year prior. And “the boom in smaller sales lagged the whopping 139.5% increase in the institutional sector, though a jump in valuations has pushed pricing above $25 million for many midsize assets,” the Green Street report said.
Deals in the small property category have been on a steady upswing since 2020, and “the momentum is strong,” said John Chang, a senior vice president and national director of research services at Marcus & Millichap. “Even with this spike of rising pandemic levels, barring a major lockdown, the private investors that I’ve spoken to are aggressively trying to place capital. I think that carries us through the remainder of this year and into next year.”
Newmark’s Sean Fulp told Green Street that the private capital space is also becoming increasingly sophisticated as major brokerages push into the space.
“The investment market has been democratized because anyone can go online and shop, tour and buy commercial real estate,” Fulp said. “Trading in and out of commercial real estate has become easier than ever before, which has changed the market landscape but also affected the decision-making pro- cess for longtime investors.”