RCA Insights

Distress and Pricing in the US Commercial Property Market

By on November 18th, 2020

A K-shaped recovery applies not just to the U.S. economy, but to U.S. commercial property prices as well. The RCA CPPI through October shows continued price growth for the industrial and apartment sectors, while the retail and hotel sectors continue to slide. The office sector is somewhere in the middle.

The gap between buyer and seller expectations has narrowed for the apartment sector despite initial panic earlier in the year. For the industrial sector, this gap is now gone and deal volume, while down from a year ago, is back to a normal level, as shown in the latest edition of US Capital Trends.

The gap in price expectations continues to widen for the retail sector, however, and deal volume teeters near record-low levels. The hotel sector is also experiencing abnormally low levels of deal activity. Prices are falling for the hotel sector, but not fast enough to entice buyers to step off the sidelines and push deal activity back to a more typical pace.

distress sales and flows United States Q3 2020

Distressed loans surged following the onset of the Covid-19 pandemic. As this distress mounted, workouts and distressed asset sales climbed as well. Distressed asset sales have represented only 1% of total transaction activity over the last two quarters, but some sectors like retail are facing much more distress than average.

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Distress data analysis by Alexis Maltin.

Jim Costello

Jim Costello

Executive Director, MSCI Research
jim.costello@msci.com

Jim is chief economist on the MSCI real estate research team and is based in New York. He previously led the U.S. research team at Real Capital Analytics, which MSCI acquired in 2021, and spent two decades at Torto Wheaton Research, working in urban economics. He is the lead author of the US Capital Trends publication and a frequent speaker at commercial real estate conferences. Jim holds a master’s degree in economics and is a member of the Commercial Board of Governors of the Mortgage Bankers Association.