CRE Investment Sales Begin to Slow
June 8, 2022 | Erik Sherman | GlobeSt.com
Two things can make a big dent in commercial real estate sales: prices and financing costs. Markets have faced a double whammy. Not only have prices continued to rise, albeit at a slower rate than before, but Federal Reserve attempts to stem an incoming inflation tide have meant higher interest rates.
And now, commercial property sales are slowing, according to a Wall Street Journalreport. “Property sales were $39.4 billion in April, which was down 16% compared with the same month a year ago, according to MSCI Real Assets,” the paper noted. “The decline followed 13 consecutive months of increases.”
Sales in multiple categories had been growing since the onset of the pandemic. Multifamily and industrial have been particularly hot for two reasons. One, each was needed. The move to online shopping during the heavy days of the pandemic boosted the need for warehouse and logistics space. A shift of people from some major cities to the West and South, as the Census Bureau documented, along with companies either abandoning old headquarters or expanding regional presence means a need for more housing.
The second reason was that CRE money goes where the people are and demands are hottest. Cap rates followed because investors bid against each other for a smaller pool of deals, driving up prices. The motivation was the expectation of rising rents that, even with higher prices, would keep more cash coming in and act as a hedge against inflation and an uncertain future.
