The market for smaller property sales didn’t hold up as well in the first half as its institutional counterpart, but brokers already see a rebound afoot. Trades of commercial real estate properties valued from $5 million to $25 million fell 10.7% to $39.58 billion from January to June, down from $44.32 billion in the first six months of 2023.

Sales of smaller commercial real estate properties fell 24% in 2023, but the continued resiliency of the private-capital space resulted in volume that easily outpaced pre-pandemic figures. Some $82.70 billion of properties worth $5 million to $25 million changed hands last year, down from $109.24 billion in the prior year, according to Real Estate Alert’s fourth annual survey of the market segment.

Average sale prices for office and retail properties plunged further in the past year, multifamily valuations dropped after peaking in 2022, and industrial properties and hotels are trading at their highest levels ever. Those are the top-line findings of Real Estate Alert’s inaugural review of weighted average sale prices on a per-sf and per-unit basis for trades worth $25 million and up in Green Street’s Sales Comps Database. 

Green Street has published a new report stating that first-quarter sales volume dropped 70% year-over-year across all four of the core sectors: Office, Industrial, Apartments and Retail, as property values continue to erode. U.S. Sales Comps data on transactions of $5 million and higher was utilized to produce the new report entitled, Property Insights: Quarterly Transaction Trends.

With bond yields on a rollercoaster and mostly rising fervently in recent weeks, asset values of all stripes have been negatively affected. Real yields have risen while future inflation expectations remain surprisingly well anchored. Even with a rally, albeit bumpy, to begin October, equities (including REITs) and bonds have been hit hard by the dual bear markets in these key asset classes.    

Rising real rates do damage to values, while higher inflation is benign. That this year’s rate spike has been primarily a function of higher real rates explains the weak start to the year. Seldom has the range of economic possibilities been as varied as it is today. Recession odds are up even as interest rates have jumped in reaction to the release of the inflation genie. The spike in yields has clobbered REIT share prices this year, and property prices have begun to drift lower. Today’s investment professionals lack experience to help assess the impact that stubborn inflation might have on real estate, but lessons from past interest rate/inflation scares offer insight.