Data from the commercial real estate exchange CREXi in the first quarter showed that investor searches for potential acquisitions had increased. But the still unresolved price gap between buyers and sellers of commercial real estate is limiting the number of deals completed and increasing the time it takes to close a deal.
According to Eli Randel, CREXi’s Chief Operating Officer, the latest figures support the thesis that there are many investors interested in commercial real estate but waiting for prices to reach levels they are comfortable with in a market on which they are comfortable Debt is more expensive and the economic outlook is gloomier.
“I think there’s a lot of capital looking for investments and placements,” Randel said. “There is a flight to quality and in many eyes healthy commercial real estate is still a safe investment. In my opinion, the volatility is probably lower [in commercial real estate] than the stock markets. So I think there is a lot of capital. However, we have this bid-ask gap and a wait-and-see attitude and there are external factors like interest rates that lead to stagnation.”
CREXi’s National trend report for the first quarter of 2023 showed that the total number of actions that typically lead to a purchase, including page views, clicks on a property’s detail page, signing offering memoranda and non-disclosure agreements, and submitted offers, increased by 26.5% during the quarter. above the previous quarter in the first three months of 2023, up 8.62% year-on-year. Unique leads increased approximately 25.3% quarter over quarter and 15.3% year over year.
At the same time, investors made fewer actual offers, likely due to tighter lending requirements and the need for strict due diligence on new deals to reflect higher interest rates, the report’s authors said. A total of 92,260 sales were completed on the platform in the first quarter of the year, less than half of the total sales recorded in the fourth quarter of 2022. It also took longer to close deals — the average number of months between a property listing and a close increasing to 170 days from 162 days in the previous quarter.
“In commercial real estate transactions, there is almost always a bid-ask gap. It could be a small gap that you can usually fill in a healthy market. “What’s happening now is buyers are starting to buy new insurance for homes based on their cost of debt — and that’s happening instantly, that’s changing in real-time,” Randel said. “Typically, sellers are slower to respond. What’s happening is that the bid-ask gap is getting bigger and it’s getting harder to close deals.”
The average price of deals closed fell 6.26% sequentially to $359,000. Year-over-year, however, there was an increase of almost 3%.
During the same period, the median cap rate for properties sold increased 30 basis points to 6.3%. This cap rate was also 30 basis points above the average bid cap rate of 6.0% in the first quarter.
More than half (56.7%) of the transactions involved apartment buildings, followed by retail properties with 21.3%. Far behind were sales of office and industrial properties, which accounted for only 11.6% and 11.4% of the completed transactions, respectively.
