CRE Transactions Reach Pre-Pandemic Levels In Q2

The US commercial real estate sales market passed pre-pandemic levels in the second quarter, according to Real Capital Analytics.

Activity in the second quarter surpassed the average deal volume trend for the second quarters in 2015 to 2019 by 14%, according to RCA. In addition, investment activity grew at a triple-digit rate compared to the pandemic-plagued second quarter of 2020.

“In a sign of market strength, it was the sale of individual assets rather than portfolio and entity-level deals which spurred the growth,” according to RCA. “The dollar level of single property transactions in Q2 2021 was 17% above the trend seen before Covid-19 hit US shores.”

The hot industrial and apartment sectors posted the strongest second quarter on record for sales across all deal structures. In addition, one large entity deal boosted hotels, according to RCA.

Another indicator of returning normalcy to the market: The US National All-Property Index grew 9.8% from a year ago and 0.8% since May. The index posted the most significant annual growth rate since 2015.

Apartment price growth jumped 12.0% after dipping to 6.9% during 2020. RCA says that deal activity in this sector has soared past the recovery phase. In fact, Q2 2021 was at a record high level for apartment price increases in any second-quarter period.

Prices in the industrial sector increased, with the industrial price index rising 9.8% from a year ago. RCA says it has remained in the 9%-10% range seen since the COVID crisis began.

The office sector index posted its best performance since 2018, rising 6.0% compared to last year. The growth wasn’t universal, however. Suburban office prices posted a 7.7% year-over-year growth rate, while CBD office prices fell 2.4% annually.

The hard-hit retail sector also saw an increase, with prices rising 3.2% from a year ago. “While this rate is an improvement on the pace seen in recent quarters, it is still below the overall pace of inflation in the US economy,” according to RCA.

While the CRE’s Q2 sales numbers were generally strong, the buying window may not be open forever.

Vacancies are declining in most property types and rent growth is comparatively strong, according to John Chang, senior vice president and director of Research Services at Marcus & Millichap, in a recent video. “In addition, interest rates are still exceptionally low, and lending liquidity is high,” Chang says. “So investors can lock in fantastic financing right now. But competition for assets is strong, and prices are generally pushing up. Between that and the prospect of rising interest rates the strong buying window will not be open for long.”