It's no secret that the COVID-19 pandemic has profoundly changed the commercial real estate industry. In a recent article, CREXi looked at how long various transactions in the CRE industry had stayed in the market to get a better look at how the pandemic has changed the industry.
The results are significant.
CREXi reports that in March and April, at the height of the pandemic, market transaction volume declined 42%. When stores opened in June, activity appeared to resume. The transaction volume had risen steadily up to July. But as the company said, that's only part of the story. When trying to measure the health of a sector, there is one specific metric to look at: how long does it take to close a deal?
After reviewing the company's market data, CREXi believes it is important to conduct a pre-COVID review of where the market was in Q4 2019 in order to draw some conclusions as to where it should lead. In the fourth quarter of 2019, inventories were in the market at the same rate or faster than in the previous quarters. A trend that CREXi attributes to buyers and sellers who want to close deals by the end of the financial year.
Fast forward to March 2020, and the average number of days properties were in the market rose 15-20%. This was true for all property types you can see in the picture below.
Source: CREXi: market data
From Q1 to Q2 2020, the average number of days that an office property was on the market rose from 152 to 168 days. By the end of the second quarter, many companies were moving to a remote workforce, and the future of the offices was unstable. The persistent increase in time is due to changes such as social distancing that accompany returning to office while the pandemic is ongoing.
Another positive outlook that CREXi pointed out is that medical practices "have served as the avant-garde for the asset class, particularly as the public interest in health and wellness waves," the company stated.
Multifamily was another asset class with interesting prospects. While the mean days when a property was on the market went from 78 to 90 days, according to CREXi it is an advantage to observe this. More and more people are moving to the suburbs and away from crowded cities, so investors may change which markets to invest in in the future.
CREXi also mentioned that it is important to keep an eye on collaboration and smaller decentralized office units as we see a migration to the suburbs.