There's a Reason Why 2023 Felt Like the Global Financial Crisis

Many in commercial real estate today may not have been active during the Global Financial Crisis, otherwise known as the Great Recession. It was brutal with a particularly hard impact on real estate, which was one of the engines that drove things to the edge and beyond.

But if they look back on 2023, they can get a strong flavor, according to MSCI and its latest 2023 Capital Trends overview.

“Deal volume fell at a pace in 2023 that was reminiscent of the worst parts of the Global Financial Crisis,” they wrote. “Prices continued to decline as well, with some elements of the market down at double-digit rates. Despite these negatives, the market is not as bleak as the change from 2022 might suggest.”

What made 2023 as bad as it was were the measures central banks took to ensure liquidity during the worst of the pandemic: low interest rates. It could last only so long, and it would be reasonable to recognize that rates had already been low for a decade. Whatever the exact details, money came flooding into CRE, chasing a better return that was otherwise available. Then came the run up of interest rates to head off inflation.

Refinancing took a beating, as did making deals pencil. There was a 51% fall in transactions in 2023, but that was in comparison to the record heights in 2021 and 2022. Looking instead to pre-pandemic transactions levels the drop was 32%. Nothing to be proud of, but much less bad than it otherwise seemed, and 2019 in particular had been a high since at least 2007 before those big years during the pandemic.

Deal volumes were down by significant amounts for all major property types. The biggest drop in transactions was not in office, as one might have guessed, but in multifamily at 61%. Office did come in second at a 56% loss. Next were hotel and industrial at drops of 47% and 44% respectively. Retail and development sites, both off by 38% each. Then came senior housing and care at 23%. Looking at portfolio and entity transactions, the rate was down 61% year over year, while single asset transactions were off by 48%.

“Prices dropped relative to 2022 but the pace of decline has been moderating,” MSCI wrote. “The RCA CPPI National All-Property Index fell 5.9% from a year earlier in the fourth quarter. The index climbed on a higher frequency basis, with the annualized pace of change from the third quarter in at 0.5%. This increase was led by the industrial sector, which had a 4.3% annualized pace of growth from the third quarter.” Not every sector was in such a good position, however, it noted as office was nearly 20% off.