March was the slowest month in almost a year for commercial real estate deal activity, with all property types except industrial and hotel experiencing a decline in transaction volume. Deal activity dropped 3.9% during the month, but certain indicators point toward green shoots while investors take a pause, according to a SitusAMC Insights report.
“CRE returns appear to be undergoing a nascent recovery,” the report said. “Overall CRE returns increased by nearly 40 bps in the first quarter to the highest rate in almost three years. Income returns were unchanged over the quarter at the second-highest rate since 2016.”
CRE represents a safe haven for skittish investors amid volatile financial markets, the report further noted. SitusAMC Insights said it observed heightened investor interest for the entire industry during the first quarter as higher interest rates persisted due to its relative safety and stability as an asset class.
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Investors are particularly bullish on the apartment segment, with interest surging to a new high as investors seek stable cash flows, according to the firm’s quarterly survey. However, uncertainty is winning out as investors wait for further clarity on the impacts of President Trump’s economic policies, said the report.
Investor recommendations to hold CRE jumped 14 percentage points to 70% during the first quarter, while the preference to buy decreased 10 percentage points to 23%, which reversed gains made during the fourth quarter. Investors were also less likely to recommend selling amid policy turmoil, with the rating dipping from 11% to 7% over the quarter, said the report.
Overall, CRE one-year trailing returns were in the black for the second consecutive quarter at 2.7%, the highest since the second quarter of 2022. SitusAMC Insights’ proprietary investment criteria data showed little movement in cap and discount rates in the first quarter.
Slowing supply for most property types bodes well for future rent growth, according to the report. Office and retail completions were the lowest on record, industrial completions were at the smallest level in a decade and apartment completions were the lowest since 2015.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
