Commercial deal volume posts healthy first quarter as office activity shows strength

The first quarter of 2022 saw commercial property sales rise at strong rates from the same period one year ago, with many key sectors experiencing growth rates of at least 50%, according to the latest Capital Trends U.S. Big Picture report from Real Capital Analytics (RCA).

Total deal volume was at $170.8 billion from January through March, up 56% for the quarter. March alone saw $71.0 billion in transactions, an annual hike of 47%.

Volumes were driven by another big quarter from multifamily, which saw $62.0 billion in transaction volume in the year’s first three months, up 56% yearly. The industrial segment, which has accounted for the second largest slice of the deal volume pie throughout the pandemic era, had another healthy quarter, with $33.9 billion in activity, up 50% year over year — though the sector finally yielded its hold on the No. 2 position.

That distinction was recaptured by the office sector, which saw $35.1 billion in volume in the opening three months of 2022. That’s a 59% climb year over year. Office movement has seen a steady growth curve of late, including $16.5 billion in activity (up 32% YOY and $3.4 billion more than industrial) in March. And while the segment saw a nice bump in portfolio and entity-level sales during Q1 2022, improvement was steady across the board, with even the sales of individual office assets outperforming, RCA reported.

While deal activity was up, RCA did note that a “warning sign” for the quarter came in the form of decelerated price growth. Per RCA’s numbers, prices for all properties were up 17.4% in the first quarter, down quarterly from 19.1% in Q4 2021. The first quarter’s growth rate, in a vacuum, is still robust, but on an annualized basis, the change in prices between the two quarters suggests a slowdown from a 28% annual pace in last year’s fourth quarter to only 5% in the first quarter this year.

What’s so far unclear is whether that price growth slowing is due to the global and economic uncertainty that has surfaced to begin 2022, or whether it’s more of a regression to historical norms. The staggering double- and triple-digit paces of annual price growth seen in 2021 were very much a function of recovery from the doldrums of 2020, so even without the shocks caused by skyrocketing interest rates and military conflict in Eastern Europe, it would be reasonable to see price increases regress.

In fact, RCA noted, it’s likely that the fallout from recent headwinds like rising rates and war in Ukraine will be seen more in coming months rather than in the first quarter data. Commercial properties changing hands generally takes weeks or even months, so the activity through March, the Big Picture report said, likely reflects sentiment from the beginning of the year rather than the course of the first quarter itself.


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