Different Takes on US Commercial-Property Sales in Q1

Deal activity for U.S. commercial property in the first quarter could be viewed as a sign of a calamitous market downturn ahead or a simple return to long-run averages after a period of excess liquidity. One’s viewpoint may differ across property types.

Relative to Q1 2022, which was the most active first quarter on record, sales across property types fell 56% to USD 85 billion. The total was broadly in line with long-term pre-pandemic levels: Sale activity averaged USD 88 billion for each first quarter from 2005 to 2019.

Office sales in both central business districts (CBD) and suburban locations were well down from the long-term trend, however, as shown in the chart. (Property types below the line saw less deal activity this year than the average first-quarter period over time.) CBD offices fared worse, with deal volume 77% below the average. Retail property sales were 19% higher in the first quarter than the pre-pandemic average, thanks to a one-time entity-level deal.

Price declines but little distress

Despite sharp declines in transaction volume and falling prices for U.S. commercial real estate, there is, as of yet, little in the way of distressed-asset sales. Such deals were only 1.4% of all activity in the first quarter. The decline in property prices has intensified, with the RCA CPPI National All-Property Index down 8.0% from a year earlier in March, the steepest drop since 2010.