That commercial real estate transactions slowed in the third quarter of this year shouldn’t surprise. Costs went up as the Fed turned the screws to baseline interest rates and commercial financing did so as well.
But buyers with cash still did deals, according to Crexi, in its quarterly national trends report. The company says that its report “dives into transaction and leasing activity on Crexi throughout Q3 2022.” As a result, the information may not be representative. But with so much seemingly up in the air, all information, even if not perfect, is at least worth considering.
“Transaction speed slowed, and more deals went on pause on Crexi in Q3 compared to activity in the previous quarter,” the firm said. “Many PRO brokers have anecdotally reported that negotiations during the contract phase have become more crucial, even among motivated sellers and buyers.”
According to Crexi’s data, the number of sales dropped by 13.4%—from 306,718 to 265,769—between the second and third quarters. The number of sales in 2021’s Q3 was 349,000, which would mean a year-over-year drop of 23.8%. However, the median sales price is up, from $323,000 in 2021 Q3 to $357,000 in 2022 Q2 and $373,000 in Q2 of 2022.
“Investors are waiting to find the best long-term ROI, not settling for yesterday’s prices,” Crexi noted. “But with plenty of liquid capital still available, deals are getting done when buyers and sellers can agree on valuations. As we head into the end of 2022, many buyers will become increasingly motivated to complete 1031 exchanges, while REITs and other institutional spenders seek value-add acquisitions to finish deploying 2022’s capital.”
Office lease activity was supposedly up 11.36% quarter over quarter. But total lease activity, which would include other types of commercial real estate, was down 5.4%, so not as heartening. There was also this: “While tenant activity moderately slowed, tenants are still far more confident and actively seeking space than a year ago. An increasing number of would-be renters are using Crexi to find their next lease across asset classes. While rates didn’t grow substantially, slow and steady gains should bolster landlord confidence in ROI from long-term, reliable tenants, just as pandemic-era protections conclude.”
The company did see a “slight correction” as “prices contracting alongside small declines in occupancy as the cost of warehouse operations became increasingly expensive.”
“Commercial real estate stands against a plummeting stock exchange, and far more volatility in other investment vehicles, with the ability to lock in rates against future interest hikes as an attractive hedge against inflation,” Crexi said overall. “In this grid-locked state of forward (albeit slow) momentum, CRE continues moving with solid fundamentals underlying changes in valuations and rents, and quality winning out in the long run.”