In the succinct words of analysts at MSCI Real Assets, “the commercial property markets are not roaring into the fourth quarter.”
That’s the big takeaway from the company’s recent U.S. Big Picture Capital Trends report, which noted that commercial real estate deal volume plunged year over year at double-digit rates in both October and November. November’s annualized decline was 60%, pushing the year-to-date transaction volume total to $323.8 billion, down 55% from 2022.
Every major asset class saw deal volumes fall. Multifamily and industrial, which had shown more resilience than other property types, were down 68% and 64%, respectively, from November 2022. The still-struggling office sector posted a 54% year-over-year decrease in transaction volume. Central business district (CBD) office space had a particularly rough month, with sales down 76% yearly. CBD office sales in November totaled less than $500 million, close to a record low.
Retail had the strongest month in terms of annual sales growth, although “strongest” is clearly relative. The sector still saw transaction volume drop by 32% compared to the same month last year.
It would take what MSCI termed as a “record turnaround” in December — to the tune of nearly $110 billion in sales — to close the quarter, much less the year, out of the red. But the market has seen that level of transactions only once before, in December 2021 when deals were occurring at a pandemic-era peak.
Part of the issue is inherent in the timeline of commercial real estate deals, which usually take a long time to coalesce. Deals that closed in November, for example, first entered negotiations months beforehand, when investors were more worried about the direction of mortgage rates. While optimism has risen in recent weeks given the shift in the Federal Reserve’s monetary policy and the potential of a economic soft landing, it may be further into 2024 before that rosiness is seen in commercial transaction data.
