US commercial real estate showing first signs of a thaw

[LOS ANGELES] US commercial real estate deals tumbled in the third quarter as Covid-19 continued to hammer the economy, but prices showed signs of improvement, according to Real Capital Analytics.

While investment volume fell 57 per cent from a year earlier, prices climbed 1.4 per cent on average, the research firm said in a report Wednesday. Deals picked up from the previous quarter, exceeding typical seasonal changes.

"Everything is not gloom and doom in the commercial property markets today," analysts led by senior vice-president Jim Costello said in the report. "Some properties are trading, and not just distressed sales."

The pandemic largely froze the commercial-property market, slowing deals earlier in the year as debts mounted and landlords balked at lowering their asking prices. Signs of a revival emerged in the third quarter, with a 37 per cent increase in investment from the prior three-month period. That's more than the typical 9 per cent seasonal gain, according to Real Capital.

Institutional investors including Blackstone Group, Harbor Group International and Brookfield Asset Management, led deal-making during the quarter.

NEW YORK PUNCH

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

Manhattan, usually the country's top market for transactions, was third, behind Dallas and Los Angeles. Investment volume fell 52 per cent from a year earlier in the New York borough, compared with declines of 41 per cent in Los Angeles and 27 per cent in Dallas.

"Manhattan's fall in the rankings is a story of a one-two punch of turmoil in the apartment market, then in the hotel market," Real Capital said.

New York City's new rent regulations hit investor interest in apartments early in the year, then hotels suffered as global tourism ground to a halt with Covid-19 lockdown measures.

Still, apartment buildings are performing relatively well elsewhere in the US. Prices nationwide rose 6.7 per cent from the year-earlier quarter, behind a 7.4 per cent gain for industrial properties - a bright spot for investors as consumers embrace e-commerce.

Prices for retail properties slid 5.3 per cent, hotels fell 4.7 per cent and office prices dropped 1.5 per cent, according to the report.

While mortgage delinquencies have surged, preliminary data show distressed-property transactions made up just 1 per cent of deals in the third quarter, according to Real Capital, "though this figure is likely to revise upward".

BLOOMBERG