MSCI has done its monthly look at capital markets by CRE category. GlobeSt.com has looked at the firm's data about retail, industrial, and multifamily.
Now it's time for the property category that, like an encapsulation of Rodney Dangerfield, doesn't get no respect — office. In a bit of understatement, MSCI noted that the "office market is not roaring" into Q4. "Deal volume fell at high double-digit rates in both October and November, and it would take a record turnaround in December to get growth in deal volume to be flat for the quarter, let alone the year. The real weakness in the sector is with CBD offices where prices and volume face more challenges than suburban assets"
Similar to industrial, retail has an end-of-year deadline quickly approaching. "To get deal volume to be flat relative to the fourth quarter of 2022, the market would only need to see sales of $15.1b for December," they wrote. "Such levels of deal activity would be easy to achieve in the prepandemic world, with December volume averaging $18.9b from 2015 to 2019. Changes in the financing environment, still-falling prices and uncertainty around future tenant demand are hindering the ability of the market to clear at such a level."
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That could likely be said for almost any CRE property type. Once you're far down the road, catching up with past performance requires always greater amounts of change. Eventually it's not necessarily impossible. In 2004, the Red Sox, down three games to the Yankees, came back to win the pennant and go on to the World Series. Muhammad Ali went to prison for year for refusing to be drafted during the Vietnam War and came out and became heavy weight boxing champion again.
But big comebacks are rare and not in general experience. Expecting one for office is quite the longshot, especially for central business district office buildings. November's $451 million deal volume for office overall was the low point of 2023. Except, it could still get worse in December. CBD deal volume was down 76% year over year, though saw growth in October. Suburban office was down only 44%, while single assets were off by 54%, as were portfolio and entity.
"Pricing is another element limiting deal volume," they wrote. "Few investors want to buy aggressively when asset prices are falling. The RCA CPPI for offices fell 14.9% YOY in November. Prices are falling more for the CBD office market than for suburban offices."
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