Size Matters: Larger Deals Struggle to Close

It’s no secret that investment activity and transaction volume across all commercial real estate sectors have stalled over the past several years. But as is the usual case with CRE, a great deal depends on asset type, geographic sector and—according to a recent CBRE brief—deal size.

The brief said that, for the most part, the rising cost of capital has impacted predominantly larger deals. There is, however, a caveat to this. In analyzing the MSCI Real Capital Analytics database of trades by quartile versus specific size, the CBRE analysts discovered the following:

• For industrial, the volume decline for the largest-deal quartile was 7.3 percentage points higher than for the smallest quartile.

• The gap between largest-deal and smallest-deal quartiles for multifamily was 9.1 percentage points.

• The retail sector defied this trend, showing a steeper volume decline for the smallest deal quartile versus the largest.

• Office showed a 15-percentage-point gap between the smallest and largest quartiles. “This is not surprising as the well-chronicled challenges in securing financing for office buildings drove investors to prefer small, lower-leverage deals,” the brief said.

In office deals, the brief said that an improvement in capital markets could lead to “an even starker difference between well-occupied, high-value office properties and underperforming secondary and tertiary assets.” The brief noted that this should possibly encourage more trading in larger, top-tier assets.

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