Commercial Property Sales Slow to a Crawl

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Year-over-year sales volume in major commercial property sectors took a tumble in January, as buyers and sellers grew farther apart in their pricing expectations, showing a clear lack of portfolios up for grabs, the kind that drove 2007 sales volume into record territory.

In the office market, portfolio sales amounted to only $413 million in January, well below the $10.1 billion recorded a year earlier, according to New York-based research firm Real Capital Analytics. Last January, 42 office properties traded for $100 million or more while this year, only eight such properties traded hands. Typically strong Manhattan saw closings drop to $613 million from $6.14 billion a year ago, but a reported $5 billion of Manhattan office buildings are under contract and more are in play, including the G.M. Building. San Francisco was the only U.S. market to post an increase in office sales in January.

While cap rates continue to rise and prices look set to fall, a wide chasm remains between what buyers are willing to pay and what sellers are willing to accept. But sellers continue to put properties on the market. More than $10 billion of office properties were put up for sale in January, the highest amount since September 2007. And based on listings so far, the volume of offerings in February will be even higher, when the figures become available.

In the industrial sector, it’s much the same story. For the first time in three years, monthly sales of significant industrial properties fell below the $2 billion level. Total closings in January of $1.7 billion represent a 65% drop from a year ago. Tellingly, few new transactions went under contract in January and sales may fall even lower in February.

Apartments fared no better, with sales of significant properties barely topping $3.5 billion in January, which represents a steep, 47% drop from a year ago. Monthly volume has not been that low since early 2004, but it did nothing to deter sellers, as a near record $7.6 billion of apartments were put on the market for sale in January, an 84% increase from a year ago.

Across all property types, sellers have been able to resist lower prices so far, but the pressure to sell will increase over time, says Robert White, president of Real Capital Analytics.

Several trends are at work. While equity capital for property in the United States remains plentiful, the buying hiatus is likely to continue. Economic uncertainty has replaced the credit crunch as the major driver of the continuing slowdown in property sales. “In most cases, it is not due to scarce credit, but because investors cannot yet be certain that the worst is over,” says White.


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