Ongoing increases in the Effective Federal Funds Rate, combined with tightening debt and concerns over economic volatility took their toll on commercial real estate sales in Q1 2023. According to CBRE’s U.S. Capital Markets report for the quarter , overall deal volume dropped by 57% year over year to $78 billion. Breaking it down, single-asset sales fell by 55% to $58 billion and portfolio sales fell by 69% to $11 billion; numbers issued by Moody’s Analytics note that the transaction declines have been ongoing since Q3 2022.
Baker Tilly weighed in stating that “the protracted challenging debt environment has seriously hampered transaction activity.” Major transactions consisted primarily of equity deals as cash is king in this current environment according to Baker Tilly’s Commercial Real Estate Market Report: Q1 2023 . Multifamily remained strong despite a 63.7 % decrease from last year at 25 Billion dollars while industrial saw a 55 % drop ending up at 18 Billion dollars according Baker Tilly researchers who noted high dollar transactions leveling out as the quarter progressed but enthusiasm remains due low vacancies, high rent growth and perceived safety during macroeconomic headwinds of an impending recession looming ahead . Retail investment volume also decreased 29%, coming in at 17 Billion dollars with continued interest seen for grocery anchored centers however office sector challenges are impacting retail particularly downtown areas where bid-ask spreads are exerting downward pressure on NNN properties per analysts’ reports .
The outlook is that while deals will continue getting done throughout 2023, high-volume days may be behind us until either interest rates subside or sellers adjust pricing accordingly; absent distressed buyers many sellers may be willing wait out this current climate longer before making decisions which could lead towards opportunistic dealmaking given depressed REIT prices according experts’ assessments