The United States commercial real estate market experienced a significant slowdown for the second consecutive month in November, with transaction volume falling 10% compared to the same period last year. The market recorded just 1,800 deals, a figure that not only continues a recent cooling trend but also dips below transaction levels seen in November 2020 during the height of the pandemic.
This downturn is attributed to a mix of persistent high interest rates, economic uncertainty, and general caution among both lenders and investors. However, a closer look at the data reveals a market that is not uniformly contracting but rather consolidating, with large-scale investors focusing on high-value, premium assets.
Key Takeaways
- Commercial real estate transaction volume dropped by 10% year-over-year in November.
- Total deal count was just 1,800, lower than levels seen in November 2020.
- Deals valued over $100 million surged by 51%, indicating a flight to quality assets.
- Multifamily properties led transaction volume, followed by office and industrial sectors.
- Specialty sectors like medical offices and data centers continue to show strong performance.
A Broad Market Slowdown
The November data confirms a cooling trend that began in October, which was the first month to show negative year-over-year growth since the market's recovery from the Federal Reserve's rate hikes began in early 2024. The slowdown appears to be deepening, with overall activity now lagging behind even the challenging conditions of the early pandemic.
Several factors are contributing to this cautious environment. According to Kevin Fagan, head of CRE capital market research at Moody’s, the situation stems from a complex interplay of economic pressures.
“This stems from the combination of higher-for-longer interest rates, policy uncertainty, a tenuous labor market, and caution on the part of CRE lenders and investors,” Fagan explained.
Despite the overall decline, Fagan notes that liquidity has not vanished entirely. “Market liquidity is still selectively open at two-thirds the volume of pre-pandemic, with a concentration in greater scale,” he added, pointing to a strategic shift in investor behavior.
Investors Bet Big on Premium Properties
While the total number of transactions has fallen, the market for large-scale, high-quality properties is booming. In a clear sign of a “flight to quality,” sales of properties valued at over $100 million increased by a remarkable 51% compared to November of last year. This trend pushed the average deal size up to $14.2 million, a notable increase from the $12 million average seen since the beginning of 2019.
This investor behavior, described as “late-cycle barbelling,” involves focusing on assets with durable, long-term demand. “The trading this month is consistent with late-cycle barbelling, where there is a focus on durable trends, like demand for housing, logistics, and digital infrastructure,” Fagan noted. The majority of the top 50 sales in November involved Class A, or premium, assets, reinforcing this trend.
By the Numbers: November CRE Market
- Overall Transaction Volume: Down 10% year-over-year
- Total Deals: 1,800
- Deals Over $100M: Up 51% year-over-year
- Average Deal Size: $14.2 Million
Sector-Specific Performance Varies Widely
The downturn is not affecting all sectors of commercial real estate equally. An analysis of the deals reveals distinct winners and losers, with investor preferences aligning with current economic and social trends.
Multifamily Remains Resilient
The multifamily housing sector continues to be a preferred asset class for investors, accounting for the majority of deals in November with 20 transactions among the top 50 sales. This reflects a consistent belief in the underlying strength of the housing market, driven by persistent demand.
The Office Market Finds Its Footing
The office sector, which has faced significant headwinds, showed signs of a market in transition. It recorded 11 of the top 50 deals, suggesting that a process of price discovery is becoming more efficient. According to Fagan, a narrative is emerging around the office deals that are closing. These transactions often involve properties purchased for specific reasons:
- Mission-critical facilities: Companies buying essential operational hubs.
- Specialty use: Buildings with unique features or purposes.
- Conversion opportunities: Properties slated for redevelopment, often into residential units.
- Discounted prices: Investors capitalizing on significantly lower valuations.
A prime example of a discounted deal was the sale of 114 West 41st St. in New York City, which was purchased at a 53% discount compared to its previous sale price. Furthermore, companies like Novartis in North Carolina and Alo Yoga in Beverly Hills are increasingly choosing to buy their own office spaces to control costs and secure prime locations at today's lower prices.
The Rise of Portfolio Deals
A defining feature of the November market was the prevalence of large portfolio transactions. These deals, which bundle multiple properties into a single sale, accounted for 17 of the top 50 transactions. This represents a growing trend compared to the pre-pandemic era, as large institutional investors seek to acquire assets at scale.
Niche Sectors Show Outsized Strength
While traditional sectors navigate uncertainty, two specialized areas are experiencing robust growth: medical offices and data centers. These asset classes are thriving due to powerful, long-term demand drivers that are largely insulated from broader economic cycles.
The largest sale in November was a massive $7.2 billion medical office portfolio. The deal involved 296 properties across 34 states, sold by Welltower to a joint venture. This acquisition made the partnership the largest owner of outpatient medical buildings in the nation, controlling 1,104 properties in 44 states.
Similarly, the data center sector continues its rapid expansion. The second-largest sale of the month was a $615 million purchase of 97 acres of land in Leesburg, Virginia. The property, acquired by SDC Capital Partners, is zoned for data center development, highlighting the immense investor appetite for digital infrastructure assets.
As the commercial real estate market continues to adjust to a new economic reality, the bifurcation between small and large deals is likely to persist. Investors are clearly signaling their preference for scale, quality, and sectors with resilient, future-proof demand.
