Deal volume across all investor types has been dismally low, hitting levels last seen in 2012, due to the economic impact and uncertainty brought on by the COVID-19 crisis. Institutional investors, however, continue to grow their portfolios despite the unstable environment.
“In the second and third quarters of 2020, institutional capital sources acquired $9.6 billion more in U.S. commercial property assets than they sold,” wrote Jim Costello, senior vice president at Real Capital Analytics, in a recent report.
The past two quarters have been the most challenged when it comes to deal activity, despite the pandemic hitting earlier in March. Cross-border investors also expanded their net position in these two past quarters by acquiring $1.8 billion more than they sold.
“What these cross-border players have in common with U.S. sources is a deep pool of capital that can pause for a while amid the crisis,” said Costello. “The fact that the institutional investors bought more than they sold over the last two quarters is therefore, in part, a story of not being forced to sell assets yet in a time of uncertainty.”
While low interest rates usually inspire activity, commercial mortgage rates haven’t varied as much, averaging 3.8% since March. “Even with more favourable financing costs, potential buyers are fearful to step up to higher prices in the face if struggling tenants and a hazy picture on future income trends,” Costello explained, with national sales activity was down 68% year-over-year in August.
He added that lenders are also acting with an element of