Commercial real estate investment saw a steep annual drop during 2020’s third quarter, with the period’s $68.4 billion of transaction volume down 57% year over year, according to Real Capital Analytics’ (RCA) Capital Trends U.S. Big Picture Report.
The sharp decrease follows the similar yearly freefall in volume logged during the second quarter, when COVID-19 began impacting American real estate in earnest. But according to RCA, there are reasons to be optimistic despite the discouraging headline figure.
For one thing, transaction volume vaulted 37% quarter over quarter, a much bigger increase than one would anticipate during a normal year. Investment activity usually grows in the third quarter compared to the second thanks to seasonality, with investors stepping up their game in September after returning from their summer vacations.
That seasonal bump normally pushes third quarter deal volume to a level 9% higher than the prior quarter; this year’s big increase suggests that people may be shedding their COVID-induced apprehensions and beginning to buy properties again.
The headline decrease is also exacerbated by the robust level of activity seen during 2019’s third quarter. It seems like a lifetime ago, but just last year, the market saw substantial portfolio activity, with logistics and infrastructure investor GLP selling two huge selections of industrial properties to entities controlled by Blackstone. Those transactions by themselves drove more portfolio activity during that single quarter than in any quarter before it. Taking just individual assets into account, the year over year drop shrinks to 49% — still a stark decline, but again, an improvement from the prior quarter.
With $24.0 billion worth of properties changing hands, multifamily remained the largest component of commercial real estate investment in Q3 despite sales falling 51% year over year. The apartment sector’s annual loss is the shallowest drop among major property sectors, with retail, office and industrial volumes down 58%, 60% and 63%, respectively, during the quarter. Those figures, however, are again influenced by outsized portfolio activity; taking just individual asset sales into account, the industrial sector fares best year over year, with deal volume dropping just 25%.
Deal volume within the hotel sector, meanwhile, continues to be ravaged by the ongoing pandemic. With just $1.9 in sales during the third quarter, hotel transaction volume is down 82% year over year.
As for price growth, gains were marginal during the third quarter. RCA’s National All-Property Index rose just 1.4% year over year, with price growth in industrial and multifamily (which were up 7.4% and 6.7% year to year, respectively) countered by weakness in retail, hotel and office (down 5.3%, 4.7% and 1.5%).