RCA Insights

US Liquidity Dips Even as Deal Volume Swells

By on October 29th, 2018

Liquidity is falling in the majority of U.S. markets even as headline deal volume data declares buoyant commercial property transaction activity in 2018. Of the 55 U.S. markets tracked in the RCA Capital Liquidity Scores, 35 logged lower liquidity scores at midyear 2018.

Headline volume has been boosted by massive multibillion-dollar portfolio transactions and company buyouts. Under the surface though, other indications of overall market health and liquidity are waning.

Fewer but larger deals have translated to a drop in the number of active buyers – an input in the construction of the liquidity scores – over the past several years.

1810 US liquidity diffusion_72-02

At midyear, six U.S. markets showed neutral growth (between -1% and 1%) in score versus a year ago, 31 markets posted a decline deeper than -1% and 18 markets posted an increase greater than 1%.

The drop-off in liquidity runs across market tiers. Top tier cities like Boston are posting liquidity declines and secondary markets like Charlotte are contracting as well. There is variation among the markets where liquidity increased: primary markets like the DC-Virginia suburbs are posting higher liquidity, and so are select second tier markets such as Nashville and Minneapolis.

1810 US liquidity dumbells_72-01

Prices, which have a strong relationship to liquidity, have not yet reacted to the declines and do not necessarily have to react in-kind to drops in liquidity. Competition for commercial real estate properties is still elevated, as evidenced by an increased amount of sidelined capital (“dry powder”) seeking investment. However, given that liquidity is persistently declining in many U.S. markets, prices may need to ease slightly in order for deal flow to increase in the future.

The RCA Capital Liquidity Scores report was published Oct. 8. If you are a client you can access the report and data file for all 155 global markets on the RCA website. Not an RCA client yet? Contact us for more information.