Record Pace for Small-Cap Property Sales

Tucker, Michael mtucker@mba.org

September 09, 2015

Small-cap commercial real estate transaction volume remains comfortably ahead of last year's record-setting level, reported Boxwood Means, Stamford, Conn.

"Multiple factors, including the wide gap between leasing supply and demand, rising rents and measured growth in property prices, conspire to spur small-cap CRE investors," said Boxwood Means Principal Randy Fuchs. 

Fuchs said the sizable gap between demand and supply will be a "compelling and positive factor" for small-cap commercial real estate lenders and investors for the remainder of the year. He said net absorption of 36 million square feet across all three property types during second quarter exceeds the historical quarterly average by 80 percent. 

In addition, the sharp upward revision of second-quarter GDP to 3.7 percent reinforces growing demand and momentum in the CRE market. "Other factors, including employment growth, wages and residential housing will supply further impetus," Fuchs said.

Of the 122 cities Boxwood tracks, 94 logged sales increases in the first six months of 2015 compared with a year ago. That represents a sizable gain compared to the 85 cities with year-to-date sales gains through the previous month and reflects the strong momentum in asset purchases in secondary and tertiary markets that is bolstered by recovering local economies. 

"The magnitude and breadth of investment in small-cap CRE assets indicate that lenders, investors and small business real estate owners have looked past the slowdown in first quarter GDP and have gained greater confidence in the nation's more recent economic trajectory," Fuchs said. "Against the backdrop of healthy economic growth, vigorous space market fundamentals and obliging debt markets, sales activity in the second half of the year is likely to produce record sales volume for the second year in a row."

Boxwood Means sees little on the horizon that might derail the small-cap sector's health. "If we have persistent healthy economic growth and only a modest rise in interest rates over the next six months, there's every reason to anticipate that small-cap CRE prices will increase further and, in so doing, allow more loan refinancings to pencil out in recovering markets," Fuchs said.

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