1031 exchange demand is driving the majority of transaction volumes during the pandemic. While some new opportunistic capital has entered the market, the majority of investment demand for CRE assets is coming from 1031 exchange buyers. The activity has not only helped to prop up transaction volumes but has also helped to stabilize pricing through the pandemic.

"Many investors are afraid of COVID-19 and the effects on real estate values, so we are seeing a variety of cash investors walking away from deals," Dwight Kay, founder and CEO of Kay Properties and Investments, tells GlobeSt.com. "However, for those who are in a 1031 exchange, if they were not to complete the exchange, they would be subject to 40%-plus in taxes. As a result, even in the midst of uncertainty due to the Coronavirus, 1031 exchange investors are proceeding with transactions to defer a large tax bill."

While these exchange buyers have helped to stabilize pricing broadly, they are also creating somewhat of a double market. Non-exchange buyers are looking for a COVID discount, and they are able to wait for it. "Many 1031 buyers are willing to transact at market pricing due to a looming tax bill if they were to not," says Kay. "Many non-1031 buyers are taking more of a wait and see approach as they tend to be more of a discretionary buyer without a motivating factor such as a tax bill to defer. In the midst of an uncertain economic and pandemic environment, many non-1031 buyers are being incredibly cautious as they are waiting to see how these recent events will affect pricing in the future."