When it comes to commercial real estate performance in 2022, it’s all a matter of perspective.
On a year-over-year basis, headline real estate investment numbers don’t look great. Nationwide transaction volume finished last year at $729.8 billion, down 15% year over year, according to recent numbers from MSCI Real Assets. The investment climate grew progressively gloomier over the course of the year as the Federal Reserve’s hawkish interest rate policy intensified. Capital costs skyrocketed, leading to uncertain lending and borrowing conditions as the year wore on.
Fourth-quarter figures are a glaring illustration of this, with commercial property sales by dollar volume plunging 62% annually in the final three months of the year. Annual price growth decelerated to 0.9%, the slowest pace since 2011. Prices began to drop on a monthly basis in September, and from November to December, prices dropped by 1.2%.
Still, it’s important to note that by historical standards, 2022 remained a very strong year. Many of the notable year-over-year declines are somewhat inflated because of the banner heights that commercial asset trading reached in 2021. The level of deal volume achieved in 2022 still registers as the second highest in MSCI’s data set, trailing only the year prior. And the historically heightened level of transaction volume wasn’t due to one-off entity-level deals boosting sales; these outsized transactions comprised only 27% of the year’s activity, just below the market average since 2010.
Multifamily housing remained the largest sector by investment volume, with full-year 2022 sales of $294.1 billion. But the sector saw a 17% year-over-year backtrack in deal volume, with sales weakening as the year progressed. The fourth quarter saw $50.4 billion in investment activity, down 69% year over year — the largest annualized drop among major property sectors in Q4.
In terms of annual growth for the whole calendar year, it was the resurgent retail segment that finished 2022 on top. Retail was the only major asset class to post a year-over-year dollar-volume gain at 4%. The sector was fueled by individual asset sales, which reached a record high last year, according to MSCI.
Every other commercial property sector took a step back when it came to full-year 2022 deal volume. Multifamily’s aforementioned 17% slide was surpassed only by the 25% year-over-year hit taken by the office sector from 2021 to 2022. Industrial fell back 15% while hotels saw a 1% decrease.