Turn To Transaction Data, Not Seasonality, For Judging Market Activity

Commercial real estate is a cyclical business. Transaction and leasing volumes ebb and flow quarter to quarter. A flurry of activity, or lack thereof, often prompts explanations tied to seasonality. Real estate professionals often cite vacation seasons, holidays and tax deadlines as factors affecting deal activity.

While there is some truth in these claims, CBRE’s research team is taking a more nuanced, data-oriented approach to these commonly held beliefs. 

CBRE creates the opportunity to share and build market knowledge on behalf of its clients. Data communicates what is happening on a market-by-market basis, and robust analytics help professionals understand why these trends are occurring at a detailed level, rather than assign broad market conditions to a calendar date. 

To understand the seasonality of commercial real estate, CBRE looked at the monthly distribution of a database of over 5.1 million transactions across a 13-year period from 2004 to 2016. The research team used the data to identify which months experienced a larger share of transactional activity across all U.S. markets.

The database studied accounts for the distribution of weekends in a given month, and the team converted each month of transactions to a rate of transactions per weekday, when most commercial real estate deals occur.

Transactions Per Day By Month

Information pulled from the database showed the seasonality of leases and sales are different. The biggest month for sales is December, and it has little impact on leasing activity. Because the date-oriented tax implications of sales are more pronounced than leases, new accounting rules aside, this lends proof to the commonly held belief that buyers and sellers are often motivated to complete sales during a given calendar year.

CBRE also observed a slight slowdown of activity during the “holiday season,” with the combination of Thanksgiving, Hanukkah and the Christmas break having a marginal impact on transaction activity. By contrast, the month of February appears to present a consistent lull in activity, with a 17% drop in activity on a per workday basis vs. the average rate. 

This is consistent for both sales and leases.

While transaction activity can be measured monthly, it is most often quantified on a quarterly basis. The seasonal effect of specific months is largely eliminated when viewed quarterly. While February is an outlier in terms of low activity, March is consistently among the most active months.

Transactions Per Day By Quarter

For leasing activity, there does not appear to be a significant variation from quarter to quarter in terms of seasonality. For sales activity, while the fourth quarter is strong, the remaining three quarters are largely consistent.

While it may be tempting to chalk up slowing market activity to seasonal fluctuation, with the specific exception of the end-of-year sales push, it is most likely not true, according to the database, especially when it comes to leasing velocity.

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