U.S. Commercial Real Estate Showing First Signs of a Thaw
Prices on U.S. commercial real estate deals showed signs of improvement in the third quarter, though the number of transactions tumbled as Covid-19 continued to hammer the economy, according to Real Capital Analytics Inc.
While investment volume fell 57% from a year earlier, prices climbed 1.4% on average, the research firm said in a report Wednesday. Deals picked up from the previous quarter, exceeding typical seasonal changes.
“Everything is not gloom and doom in the commercial property markets today,” analysts led by Senior Vice President Jim Costello said in the report. “Some properties are trading and not just distressed sales.”
The pandemic largely froze the commercial-property market, slowing deals earlier in the year as debts mounted and landlords balked at lowering their asking prices. Signs of a revival emerged in the third quarter, with a 37% increase in investment from the prior three-month period. That’s more than the typical 9% seasonal gain, according to Real Capital.
Institutional investors including Blackstone Group Inc., Harbor Group International, and Brookfield Asset Management Inc., led deal-making during the quarter.
New York Punch
Manhattan, usually the country’s top market for transactions, was third, behind Dallas and Los Angeles. Investment volume fell 52% from a year earlier in the New York borough, compared with declines of 41% in Los Angeles and 27% in Dallas.
“Manhattan’s fall in the rankings is a story of a one-two punch of turmoil in the apartment market, then in the hotel market,” Real Capital said.
New York City’s new rent regulations hit investor interest in apartments early in the year, then hotels suffered as global tourism ground to a halt with Covid-19 lockdown measures.
With Prices Down $200 Per Room, NYC Hotels Set for More Pain
Still, apartment buildings are performing relatively well elsewhere in the U.S. Prices nationwide rose 6.7% from the year-earlier quarter, behind a 7.4% gain for industrial properties -- a bright spot for investors as consumers embrace e-commerce.
Prices for retail properties slid 5.3%, hotels fell 4.7% and office prices dropped 1.5%, according to the report.
While mortgage delinquencies have surged, preliminary data show distressed-property transactions made up just 1% of deals in the third quarter, according to Real Capital, “though this figure is likely to revise upward.”