In this episode of “The Inside Look,” Senior Commercial Real Estate Economist Xander Snyder discusses the slowdown in commercial real estate transaction volume in the first quarter of 2024.
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Transcript:
Hello, I'm Zander Snyder and this is First American's Inside Look.
There's no escaping it. Commercial real estate transaction volume was sluggish in the first quarter of this year. Commercial real estate transaction volume in Q1 was only about $52 billion, the lowest quarter since Q2 2020. However, that was still in the early stages of the pandemic, when work disruptions were at their most severe. Not everyone had yet figured out remote work, and quarantine policies were still in place across much of the country. But since then, we've seen the biggest inflationary spike since the late 1970s and early 1980s. However, transaction volume is typically reported in nominal dollars, meaning it's adjusted for inflation. So how can we more closely compare today's transaction volume to that of four years ago?
One way to filter out inflation when comparing to prior periods is to look at the total amount of space instead of the total value of properties traded. Measuring space instead of dollar amount allows us to better account for new construction completed from 2020 to the present. Unfortunately, measuring space instead of dollar amount doesn't tell a better story.
Approximately 245 million square feet of non-residential commercial real estate traded hands in Q1 2024, compared to 212 million square feet in Q2 2020. This represents a 16% increase, with all of the increase coming from increased retail real estate sales. While fewer square feet of both office and industrial traded hands in Q1 2024 than in Q2 2020, retail space transaction volume nearly tripled from 30 million square feet in Q2 2020 to 81 million square feet last quarter.
Now, the numbers I just mentioned don't include multifamily properties, because multifamily properties are typically measured by number of units, not square feet. But this varies. So, what was multifamily transaction volume in the first quarter of this year, in terms of units? In the first quarter of 2024, about 84,000 apartments traded hands, compared to 102,000 in the second quarter of 2020. That's about a 20% drop from a time when it was very difficult to get almost any work done. In fact, the last time multifamily transaction volume, in terms of units, was this low was in the second quarter of 2010, after the global financial crisis.
The good news in this story? Well, at this level we are probably at or near the bottom. Volumes are likely to recover towards the end of the year, certainly aided by potential interest rate cuts.
Thank you for tuning in to this episode of The Inside Look, and we'll see you next time!