The Pace of CRE Price Declines is Moderating
There was a 5.1% annualized rate of decline from the first to the second quarter.
Commercial property prices are in retreat, but the pace of the fall in prices is moderating.
That is the finding of a new study of CRE deal volume by MSCI Real Assets.
There was a 63% year-over-year decline in deal activity in 2Q 2023. However, the study finds the more apt comparison is to the pre-Covid period from 2015-2019. By that standard, volume in 2Q 2023 was only 35% lower. “Clearly this retreat is not the sign of a healthy market, but it is not as bad as the headline drop of 63%,” the study stated.
Individual asset sales were down 61% from a year ago and 30% off the average pre pandemic levels, and all property types were affected with high double-digit drops. The RCA CPPI National All-Property Index was down 10.2% from a year earlier in 2Q 2023. MSCI reported a 5.1% annualized rate of decline from the first to the second quarter of 2023 — an improvement on the period 4Q 2022 to 1Q 2023, which saw the steepest declines.
“The apartment sector remained the largest, most liquid market ahead of the industrial sector, despite a 72% drop in activity [in Q2 2023] relative to a year ago” with sales totaling $28.2 billion, the study reported. Comparing second-quarter 2023 transactions to the previous year, retail plummeted 66% to $9.5 billion, hotels and office each fell 58% to $5 billion and $12.5 billion respectively, while industrials dropped 47% to $22.3 billion.
“The decline in commercial property prices may be moderating, but potential buyers and current owners are still too far apart on price expectations for higher levels of deal volume to close across most property sectors,” MSCI concluded.