The Inside Look with Xander Snyder - Episode 10

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.

Hi, I'm Xander Snyder, and this is First American's Inside Look.

There's no way around it. Commercial real estate transaction volume was slow in the first quarter of this year. Only about $52 billion worth of commercial real estate traded in the first quarter, making it the slowest quarter since the second quarter of 2020. However, at the time, we were still in the early stages of the pandemic, when disruptions to work were at their most severe. Not everyone had figured out remote work yet, and quarantine policies were still in effect throughout much of the country. Yet, since then, we've seen the greatest surge in inflation since the late 1970s and early 1980s. Yet transaction volume is typically reported in nominal dollar terms, which just means that it is an inflation adjustment. So, how can we make a more apples-to-apples comparison between transaction volume today and four years ago?

One way to factor out inflation when making comparisons to prior time periods is to look not at the total value of properties traded, but at the total quantity of space. Measuring space instead of dollars also better accounts for new construction that's been delivered between 2020 and today. Unfortunately, the story doesn't get any prettier when you measure space instead of dollars.

In the first quarter of 2024, approximately 245,000,000 square feet of nonresidential commercial property was traded, compared to 212,000,000 square feet in the second quarter of 2020. Though this represents a 16% increase, all of that increase came from higher retail property sales. There were fewer square feet of both office and industrial traded in the first quarter of 2024 than in the second quarter of 2020, but a nearly three-time increase in the quantity of retail space traded from 30,000,000 square feet in the second quarter of 2020 to 81,000,000 square feet last quarter.

Now, the numbers that I just mentioned did not include multifamily properties, since multifamily properties are typically measured in terms of units rather than square feet, although this is context dependent. So, in terms of units, how did multifamily transaction volume look in the first quarter of this year? In the first quarter of 2024, roughly 84,000 apartment units were transacted, compared to 102,000 units in the second quarter of 2020, a nearly 20% reduction from a time when it was extremely difficult to get work of almost any sort done. In fact, the last time multifamily transaction volume was this low in unit terms was in the second quarter of 2010 in the wake of the global financial crisis.

The good news in this story? Well, at these levels, we are probably at or close to a trough. Transaction volume will likely pick back up towards the end of this year, and that will certainly be aided by any interest rate cuts that might materialize.

Thanks for watching this edition of The Inside Look. We'll see you next time.