Property Sales Shattered Records In Q3

Sales of commercial real estate assets in the US hit record-breaking highs in the third quarter, thanks largely to activity in the apartment and industrial sectors.

Real Capital Analytics’ latest US Capital Trends report shows that deal volume hit $450 billion in the first three quarters of the year, a high watermark for commercial real estate generally. Deal activity has not approached that level since 2007, prior to the Great Financial Crisis. 

According to Green Street’s all-property index, prices have increased by 18% this year and are 8% higher than pre-pandemic levels. The firm has issued a strong “buy now” signal as cap rates continue to slump, noting that fundraising by real estate private equity firms this year has “smashed records” and predicting that continued competition will lead to higher property prices in 2022. 

“Investors could benefit from acquiring assets in nearly all property sectors,” Green Street notes in a recent analysis. “The perfect storm of incredibly low bond yields, high volumes of capital flowing into private equity, and open debt markets where financing rates are near unprecedented levels, will spur continued price increases for commercial real estate.”

Activity was largely fueled in the third quarter by individual asset sales in the apartment and industrial classes, which comprised 60% of total activity, per RCA data. Apartment deal volume in particular was the standout, with quarterly figures higher than the average annual numbers for the asset class between 2008 and 2011. 

Cap rates in popular Sun Belt metros and secondary coastal markets are ranging from the mid-3% to low-4% range, according to Green Street data. The firm notes that deal flow is picking up for Class A properties in coastal markets, with Seattle, DC and Los Angeles seeing prices approaching more normal levels. There are also “signs of thawing” in New York and San Francisco.

“In the near term, rapidly improving operating fundamentals, and accommodative capital markets will bolster apartment values,” Green Street analysts noted in the recent report.

Year-to-date activity also hit a new record for industrial, which has been buoyed by surging e-commerce growth and warehouse/logistics demand. Values for industrial properties have surged by 39% over the last year, and the spread in industrial cap rates between coastal and non-coastal markets “has never been this tight,” Green Street analysts noted in a recent report. The largest industrial sale so far this year is Costco Wholesale’s $345 million acquisition of a 1.6 million square foot facility in Ontario, Calif.