The commercial real estate market has experienced a slowdown in investment and transaction activity over the past few years. However, this trend varies depending on factors such as asset type, location, and deal size according to a recent report by CBRE.
The report states that larger deals have been more affected by the rising cost of capital. This is evident when analyzing data from MSCI Real Capital Analytics which shows a 7.3 percentage point decline in volume for industrial properties in the largest-deal quartile compared to the smallest quartile.
Similarly, multifamily properties saw a 9.1 percentage point difference between their largest-deal and smallest-deal quartiles. The retail sector was an exception to this trend with smaller deals experiencing steeper declines than larger ones.
Office properties showed the biggest gap of 15 percentage points between their smallest and largest deal quartiles due to challenges securing financing for office buildings leading investors towards smaller deals with lower leverage according to CBRE’s brief.
However, as capital markets improve there may be even greater differences between well-occupied high-value office assets and underperforming secondary or tertiary assets which could encourage more trading in top-tier larger assets.
