Transaction Volume Plummets As Buyers, Sellers Clash Over Property Values
While a predicted slowdown in the business cycle has yet to occur, discrepancies between perceived property values and the cost a buyer is willing to pay are causing a deceleration in asset sales.
As of Monday, listed REITs had sold $46.7B in assets. This is significantly lower than the $71B in assets sold in 2016. A similar trend occurred on the acquisitions side. As of Monday, there were $44.6B in acquisitions reported while last year $47.9B in acquisitions were reported, according to the Wall Street Journal.
Buyers have become increasingly cautious in the face of slower income growth and tighter lending conditions while sellers are holding on to properties under the assumption they can achieve better returns by waiting or renting.
In the past, strong property rent growth fueled transactions, but this year rent growth has been generally stagnant, leading to a slowdown (with the exception of industrial properties). Office and retail properties have seen the largest drop in major transactions in 2017.