As Investors Shift Focus, CRE Sales Volume Falls Off
Buyers and Sellers Confront Pricing Friction While Investors Adjust Strategies to Target Secondary Assets, Markets
While CoStar has not completely closed the books on its COMPs research for February 2012 and the sales volume for that month will still go up slightly–the gap is such that sales volume for February 2012 is unlikely to match sales volume from February 2011.
With reporting on the largest deals already completed, CoStar COMPs data shows $9.2 billion in sales volume for February 2012 compared to $11.3 billion in February a year ago.
In interviews, CRE analyst, brokers and investors attribute the February lull as the result of two major factors: a disconnect in pricing expectations between buyers and sellers that has grown wider apart in recent months, and a shift in investment activity to secondary markets.
CoStar this month introduced three new metrics measuring property market liquidity to its benchmark repeat-sale indices: average sale price-to-asking price ratio, average days on the market, and the sales withdrawal rate. The data in these metrics suggest that there may still be a lot of peaks and valleys in the sales process of matching potential buyers and sellers.
“Real estate practitioners have long used transaction volume and average days on market before properties get sold as two proxies for real estate market liquidity,” said Dr. Ruijue Peng, chief research officer for CoStar Group’s PPR. “Together, these two parameters capture the unique qualities of real estate transactions: infrequent, lumpy, and slow.”
The average number of days that properties were on the sales market reported in the March 2012 CoStar Commercial Repeat Sales Index (CCRSI) was 420 days in January, a record high, rising from about 250 days in January 2007. This number of days on market “is very concerning,” Peng said.