Tracking Private CRE Transaction Trends

While commercial real estate transaction volume has slowed dramatically this year, it is still helpful to look at last year’s investment trends as they can point to where future transactions might occur. Florida, for example, became a leading recipient of CRE investment funds, while investors moved away from value-add strategies to embrace core plus. 

The latest Market Pulse report from funds platform Juniper Square takes a look at these trends and is bullish on future activity. “GPs are still sourcing deals, developing projects, launching funds and raising capital from LPs across the country,” reads the report, which uses aggregated client data.

A Brief History

 The CRE industry grew massively over the past decade with transaction volumes swelling 250% between 2012 and 2018, the highest year on record, and with many individual property types seeing their best years ever in 2020 and 2021. And the good times continued throughout 2022 despite the challenges of ongoing supply chain disruptions, rising inflation and interest rate hikes, showing the resiliency of CRE. 

Once the pandemic hit, private CRE transaction volumes fell 44% between 2020 and 2022. 

There were wide divergences in transaction volume by property type, however. Multifamily transaction volumes dropped by 14% during that time, while office declined by 87%. Industrial transaction volumes increased 70%, though, and 2022 was the second highest year on record for industrial.

Florida Emerges as Leader 

When viewing transaction volumes by state in 2022, Florida emerged as a leader by volume, capturing a roughly 32% share — five times that of the previous year — while Arizona fell out of the top 10. Formerly hot markets such as Georgia and New York also saw their share fall outside of the top 10. Texas held onto third place, while North Carolina jumped from tenth to fourth.

A look at the share of acquisitions, measured by the number of assets, across property types shows industrial acquisitions have risen as a share of the total from less than 7% in 2018 to nearly 18% in 2022. Office acquisitions have seen the biggest decline over that same period, from a share of 24% in 2018 down to just 16.5% in 2022. Multifamily remains the largest in terms of volume, with its share of acquisitions remaining between 43% and 48% for the past decade.

Shifting Away from Value-Add

Acquisitions by risk profile saw a shift away from value-add, with the share of this type of deal reducing by more than 16% in 2022. The share of acquisitions for core plus saw the biggest jump, 7% overall.

When it comes to investor preferences, measured by the percentage of new funds by risk profile, demand for value-add funds remains high, while the appetite for opportunistic funds decreased considerably. Value-add funds’ share rose from 48% to 52% of all funds launched in 2022. Opportunistic funds had the largest drop in share, decreasing by 14%, while the share of core plus funds grew by 11%.

After peaking at 59% in June 2021, LTV ratios remained nominally flat through the second half of 2022, ending the year marginally below 2019 ratios.

Over the years, more GPs have taken out more floating interest rate loans to help fund their projects. The gap between fixed and floating started widening back in 2018.