Barring a record volume of December sales, it’s highly likely that commercial real estate transaction volume is set for a decline in 2022, according to the newest Capital Trends U.S. Big Picture report from MSCI Real Assets.
Through the first 11 months of this year, total sales activity landed at some $3.3 billion lower than the same figure in 2021 — and the gap is that narrow only because of strong activity at the beginning of this year. To end 2022 at the same level, December transaction volume would need to finish at nearly $194 billion, a level that would be a record high if realized.
Granted, that $194 billion figure would only be a 2% increase in sales growth. It might not seem significant, but recent trends suggest that it’s going to be a high bar to clear. While the Federal Reserve has recently begun to ease off the pace of increases to its benchmark interest rate, the rate environment is poised to be somewhat elevated in the near to medium term. Rates have been highly impactful of late, with acquisition volume dropping at a double-digit annualized pace in each of the past four months, punctuated by a staggering 72% dive in November.
All of the major commercial property sectors contributed to the plunge, with each posting year-over-year decreases in November sales volume. The industrial sector led the plummet with $5.1 billion in November sales, second highest among all asset classes but down 80% year over year. Apartments saw the largest November transaction volume at $11.4 billion, but again, they registered a noteworthy 74% decline from the same month last year. November sales volumes in retail and office were down 74% and 64%, respectively, on a year-over-year basis.
Some sectors are better poised than others to deliver enough sales action in December and improve upon their full-year 2021 levels. Due to strong rebounds through most of this year, both the retail and hotel segments have logged higher rates of deal activity through November compared to last year. Year-to-date retail transaction volume was up 14% through November while hotels were up 7% through that same period.
Both asset classes need to see only marginal December investment activity to exceed their modest overall figures from 2021. Multifamily, which had been resilient through the first half of 2021, also is up from the first 11 months of last year when it comes to deal volume, although MSCI noted that the sector needs to post an “unusually strong” level of activity in December to finish the year with positive growth.
Meanwhile, the industrial and office segments were down 3% and 12%, respectively, year over year through November. Both would need to strongly buck recent activity trends to close 2022 on a positive note compared to last year.