Europe overtook the United States as the region with the highest volume of commercial real estate deal activity during the second quarter — and according to Real Capital Analytics (RCA), the trend line going into July points to more of the same.
European second quarter deal volume for deals priced $10 million and above surpassed U.S. deal volume by $19 billion, per RCA, marking the first time since the fourth quarter of 2017 that the volume needle was higher on the east side of the Atlantic.
Even then, a single entity-level megadeal involving pan-European warehouse firm Logicor skewed the numbers toward Europe’s favor. Barring that, the U.S. has been a larger commercial investment market every quarter since the second three months of 2012.
But commercial deal volume plunged when the United States tailspun into recession in March, and the dollar has fallen against the euro ($1 equaled $0.92 euros in May and has fallen to $0.85 since), further strengthening European deal volume when converted into U.S. currency.
The quarter’s switch in fluidity ranking doesn’t necessarily signal strength on the European side; in fact, deal volume across Europe plummeted 32% in the second quarter compared to the same period last year. Rather, according to RCA Senior Vice President Jim Costello, the data suggests that investors simply have less confidence in the U.S. than in Europe at the moment.
“The issue faced in the U.S. today is the uncertainty around the economic fallout from a harsher impact from Covid-19,” Costello explained. “In mid-August, daily deaths from Covid-19 in the U.S. were nearly 10 times greater than that in the European Union, a region with roughly 120 million more people than the U.S.
“With a harsher public health situation in the U.S., investors face greater uncertainty around underwriting future income trends for a property. The social safety nets of European countries can look more expensive, but in a time of crisis, they can also help investors understand how economic losses will be distributed.”
Early data for July doesn’t suggest a reversal, with RCA’s numbers showing a yearly drop in U.S. transaction volume in the high double digits. The one silver lining, RCA reports, is that July preliminary deal volume has still come in at more than $10 billion. Activity in 2009, in comparison, averaged around $6 billion, meaning that transaction volume has so far remained above Great Recession levels through the COVID-19 pandemic.
