Alternative Sectors Take a Hit in Q2

Despite some “dark spots plaguing the market” and the possibility of backsliding, MSCI has said that volume and pricing may have hit bottom in Q2, 2024.

Some other sources such as Goldman Sachs and CoStar also say there’s been evidence of a bottom approaching if not quite here. Those are broad views over large markets, with acknowledgments that some areas like offices are complex, with the top 10% to 15% doing well in Class A and the rest in Class B and C taking the bulk of the hits.

But the office market isn’t alone. Although not at the same level of pain, particularly, MSCI said that alternative sectors are showing a bottom. Investment volume across alternative property types during the second quarter was $8.6 billion, or down 12% year over year. Compared to the average second quarter between 2015 and 2019, sales activity was off by 34%. All asset types were either at the average or below it.

The big winner of the quarter was cold storage, which saw a 44% year-over-year growth. There was $0.3 billion in single-asset and $0.2 billion in portfolio, making a total of $0.5 billion in sales.

Next was mobile and manufactured housing, up 34% year over year, with $0.5 billion in single-asset transactions only.

Self-storage was up over last year by 4%, with $0.6 billion in single-asset sales and $0.8 billion in portfolio.

Now come the losses, with age-restricted and $0.3 billion single-asset, $0.1 billion portfolio, for a total of $0.4 billion, down 2% from the year before.

Student housing was down 5% year over year, with $1.6 billion in single-asset properties and $0.1 billion in portfolio.

Medical office saw $1.3 billion in single-asset transactions, $0.9 billion in portfolio, for a total of $2.2 billion, a year-over-year -7% comparison to last year.

R&D posted a significant drop of -29%, including sales of $1.2 billion in single-asset and $0.3 billion in portfolio.

Finally, data center recorded $0.3 billion in single-asset and zero portfolios, making a drop of 66%, a huge amount for assets.

MSCI said that individual assets often do better than portfolio or entity-level transactions because underwriting for the former is more focused. An entire portfolio may have implications from stronger and weaker properties that could affect the single properties.

The individual properties totaled $6.4 billion, down 20% year over year. “Such sales accounted for 74% of alternative volume in the second quarter, above the average second quarter share since 2017 of 66%,” they wrote.

Portfolio and entity-level trades were up 27% from the previous year. However, the portfolio trades in 2023 Q2 were the lowest level for that period in more than a decade, so the growth was over a low bar.