US CRE Deal Volume in Q2 Slides 68% YOY Amid Pandemic – RCA
July 24, 2020 | Sylvia Cycil | S&P Global Marketplace
U.S. commercial real estate deal activity in the second quarter was severely impacted by the coronavirus pandemic, with the transaction volume tumbling 68% year over year to approximately $44.7 billion, hitting the worst levels for any second quarter since 2009, according to Real Capital Analytics, or RCA.
Second-quarter deal volume for the office sector fell 71% to $11.0 billion, while industrial transactions were down 50% to $10.3 billion. Retail deal volumes sank 73% to $4.6 billion and apartment deal volumes were down 70% to $13.9 billion.
Despite a 50% year-over-year fall in second-quarter deal activity, the industrial sector posted a 17% pace of growth for the first half of 2020.
Hotel was among the hardest-hit sectors in the second quarter, with deal volume slumping 91% to $642.9 million.
RCA said the 68 hotel deals that closed in the quarter represent the smallest count of hotel transactions in any second quarter on record, hurt mainly by the full-service sector.
Investors targeted markets outside of the major metros and in smaller amounts in the quarter compared to prior periods. According to RCA, portfolio deals declined 77%, while not a single entity-level deal took place.
Distress in most of the market remains relatively low, RCA said, noting that the inflow of distress in the quarter was on par with the average quarterly inflows of 2009. More than 90% of currently distressed assets belong to the hotel and retail sectors.
Reports of potentially distressed assets surged during the second quarter and totaled more than $90 billion for the first half of 2020.
For both the second quarter and June, distressed sales accounted for only 1% of aggregate deal volume.
From the investment viewpoint, Dallas emerged as the best U.S. commercial property market at the middle of 2020, followed by Manhattan, N.Y.; and Los Angeles.
“In addition to the current economic and health crisis, the lasting impacts of Covid-19 remain unclear and that uncertainty has pushed investors out of the market. Once we see price discovery and more distress start to enter the market, we will see the sidelined dry powder come into play,” RCA said.
Source: S&P Global Market Intelligence
