The commercial real estate market has experienced a slowdown in investment and transactions in recent years. However, the impact of this trend varies depending on factors such as asset type, location, and deal size. According to a recent report from CBRE, the rising cost of capital has primarily affected larger deals. However, there are exceptions to this pattern.
After analyzing data from MSCI Real Capital Analytics on trades by quartile and specific size categories, CBRE analysts found that industrial properties saw a 7.3% decline in volume for the largest-deal quartile compared to the smallest quartile. The gap was even wider for multifamily properties at 9.1%. Surprisingly though, retail showed a steeper volume decline for smaller deals than larger ones.
Office properties had the largest gap between smallest- and largest-deal quartiles at 15%. This is not unexpected given challenges with securing financing for office buildings which led investors towards smaller deals with lower leverage according to CBRE’s brief.
However,the brief also noted that an improvement in capital markets could result in an even greater contrast between well-occupied high-value office assets versus underperforming secondary or tertiary assets.This may encourage more trading activity focused on top-tier assets.
