Finding Growth Amid Smaller Properties
Details are all important because not everything everywhere behaved as might have been expected.
Property transactions are down, as every significant source of data — including the Federal Reserve — has been saying. But there are two things to consider. One, some overall statistics of mix suggest that some popular assumptions aren’t necessarily true, or at least they’re more complicated than it might seem. Two, always be careful about what’s used as a benchmark for year-over-year comparisons.
Green Street’s Real Estate Alert noted that in 2023, property dollar sales of $5 million to $25 million in size outperformed by percentage change dollar sales of properties with values of $25 million or more, compared to 2022. Both dollar sales categories saw transaction losses, but the percentage of the more expensive properties was much higher. Less expensive properties saw a drop, but smaller.
The same publication, though, had some other interesting observations. The first is an assumption of how some property types are doing much worse than others. There were three pie graphs — one each for 2021, 2022, and 2023 — showing the percentages of total sales for office, industrial, retail, multifamily, hotel, and niche (self-storage and data centers). The percentages changed a little by year, but not much.
Office, the “disaster” of CRE, was 17% of total sales in 2021, and 16% in 2022 and 2023. Yes, the dollar amounts fell, but so they did for each other category. Hotel went from 5% in 2021 to 8% and 10% in 2022 and 2023, probably because of the end of shutdowns. Industrial started at 24%, dropped to 21%, and then returned to 24%. Multifamily saw a slide from 30% to 29% to 26%. Retail: 20%, then up to 23%, and down to 21%.
Drill in a bit more on office, where year-over-year sales of properties from $5 million to $25 million in size not only avoiding falling as fast as transactions of $25 million plus properties, but in eight out of the 20 metros profiles, the smaller property size for office actually grew in sales. Some of the more prominent percentage increases were D.C. Metro (+32.1%), San Jose (+12.7%), Tampa-St. Petersburg (+25.5%), New Jersey Central (+28.2%), and Charlotte (+15.7%).
Plenty of activity growth, if you knew to focus on smaller properties and picked the right metro. For $5 million to $25 million multifamily properties, the metros for biggest (at least 20%) year-over-year transaction growth in 2023 were Northern New Jersey; Portland, Oregon; and Minneapolis. The last one was up 36.7%. Details matter.