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CRE Deal Volume Rebounds as Price Declines Stabilize

With deal volume climbing for the first time in several years and price declines slowing, the commercial property markets turned a corner last year. Every deal structure contributed to this positive trend, although pockets of weakness remain, according to MSCI’s 2024 capital markets report.

The commercial property markets have suffered two related shocks during the past five years. The first was the COVID-19 pandemic, which created uncertainty and diminished tenant demand. Then a sharp decline in commercial property prices started in 2022 as the positive effects of stimulus spending and low interest rates began to wane. Through much of 2024, those declines moderated, MSCI said. The fourth quarter was particularly healthy, with deal volume increasing 32% year-over-year to close at $130.6 billion. However, that remained lower than an average pre-pandemic quarter when volume averaged $161.9 billion.

Before the pandemic, single-asset deals averaged $393.1 billion per year, with the fourth quarter averaging 29% of all annual deal volume at $112.4 billion. Individual asset sales in Q4 2024 were 33% of the market, suggesting liquidity was improving more rapidly to close the year, said MSCI.

Cap rate trends support the higher levels of deal activity, said the report. Across the office, industrial, retail and apartment sectors, cap rates increased anywhere from 10 to 50 bps in the fourth quarter relative to a year earlier. That increase was more muted than the increase in Q4 2023 when cap rates had risen between 50 to 70 bps.

Buyer and seller expectations are closely aligned in the industrial sector, indicated by the simultaneous growth in prices and fourth-quarter investment. For other sectors, the year-over-year increase in sales volume was achieved alongside negative price growth, suggesting that sellers needed to adjust their pricing expectations to draw investors back to the market.

Single asset sales for apartments grew 47% relative to the year prior, while prices declined 4% over the same period. CBD offices posted the steepest annual price declines, falling 9.3%, while also accounting for the largest annual gain in fourth quarter investment at 125%.

“Unlike the apartment sector, where the price decline was significant enough to rejuvenate investment to historical norms, the office sector remains 42% below the average investment level seen in the five years before the pandemic,” said the report. “Still, momentum for the sector is positive. Increased sales volume was a function of healthy deal flow, with more transactions closing than in any fourth quarter since 2021.”

Reprinted with permission from the Monday, 03 February 2025 07:21:59 EST online edition of GlobeSt © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.