CRE Sales Are Ticking Back Up Despite Stagnant Interest Rates
Commercial real estate sales transaction data is starting to show signs of recovery, though numbers are still well below the low-interest-rate days of the early pandemic.
The number of CRE sales still dropped 8% in the first quarter of 2024 compared to a year earlier, according to an analysis from Moody’s. But that is substantially less of a drop than the last quarter of 2023 when sales were down 18.4% over the previous year. Transactions fell to all-time low of negative 55% in the second quarter of 2023, the report shows.
Though the numbers are improving, an interest rate cut still can't come soon enough for the CRE capital market, Moody’s analysts said in the report. Federal Reserve Chair Jerome Powell again urged “patience” around interest rate cuts this month, when the base rate remained at 5.25% to 5.5%.
Powell said it is unlikely the next policy rate move will be a hike, saying the body would “need to see persuasive evidence that our policy stance is not sufficiently restrictive to bring inflation sustainably down to 2% over time.”
Moody’s said the Fed must start decreasing interest rates for there to be any meaningful growth in transaction volume despite “some signs of life.”
One of those signs includes a recent increase in transactions over $50M. The year-over-year growth rate for transactions in the $50M to $100M range and transactions over $100M was 43.1% and 16.4%, respectively.
Among those transactions was Kering, Gucci’s parent company, paying $963M to acquire 115K SF of retail space on Fifth Avenue in New York City. Jeff Sutton’s Wharton Properties sold the multilevel retail space at the base of a 26-story office tower. International buyers helped boost NYC's CRE sales market to its best quarterly performance since 2022, Bisnow previously reported.
Another was UCLA’s $700M acquisition of the former Westside Pavilion mall from Hudson Pacific and Macerich. UCLA will turn the mall into a research facility, a pivot from Hudson Pacific’s initial plans to turn the mall into an exclusive office complex for Google.
Moody’s data shows sales of multifamily, industrial and retail properties increased in the first quarter of this year, while hotel and office sales decreased.
The decline in office transactions was largely due to several large office sales completing in the last quarter of 2023, including a $2B transaction for 250 Vesey St. and a $1.5B transaction for Two Manhattan West, both in NYC, according to Moody’s.
Banks are still operating under more restrictive lending standards for commercial properties, the report states, but the share of banks tightening up lending practices is the lowest in two years.
The last time any banks somewhat eased commercial lending standards was in 2022, and the last time any banks considerably eased commercial lending standards was in 2019, Moody’s data shows.
“The CRE market is tired of ‘higher-for-longer’, but the good news is that there is light at the end of the tunnel,” the report states.
