CRE Deal Activity in May Was 'Dismal', RCA Says

Real Capital Analytics says uncertainty from investors continues to climb and US commercial property sales fell again last month with the coronavirus pandemic.

“The headline figures for deal activity in May are dismal,” RCA wrote in a report. “Investor uncertainty continues to mount as it remains unclear the extent to which Covid-19 will impact the broader economy and sap business demand for commercial property.”

The report says many investors are making the choice to sit on the sidelines. The new report comes as the US  remains in the throes of a coronavirus pandemic, which has forced many businesses to rethink how they will prevent the spread of the deadly virus.

Last month, overall volume came in at $9.8 billion, according to the company, and transaction volume dropped to the lowest level for a May month since 2010.

“Construction starts have dropped off at a similar pace to that of volume. Through May, the pace of acquisitions has fallen 21%,” according to the report. “Preliminary RCA data shows construction starts for all properties are expected to be off by around 30% for the first half of the year.”

The report says credit markets “are far from frozen.” Refinancing activity for property types is about 30% behind when compared to the same time period one year ago, according to preliminary RCA data tied to May and April. 

“It should be noted that 2019 was a high-water mark for refinancing volume,” the report says. “If the level of April and May volume is compared to the average level for the years 2015 to 2018, current levels would be off by less than 20%.”

The report says hotel properties saw a 95% drop in year-over-year transaction volume during May 2020. 

Retail properties had a 83% decrease in year-over-year transaction volume during May 2020, while office property had a 82% drop and apartment property saw a 81% decrease in that metric, according to the report.

Reports of “potentially distressed assets” have been going up since the beginning of 2020, according to RCA.

“Lenders have been willing to grant borrowers forbearance, so instances of defaults or foreclosure proceedings remain small at this early juncture,” according to the report.