U.S commercial real estate (CRE) investment volume increased by 97.2% in Q4 from Q3 to $135.4 billion, indicating a strong resurgence of investor confidence, according to CBRE’s U.S. Capital Markets Figures Q4 2020 report.
However, commercial real estate investment volume decreased by 21.0% year-over-year in Q4 and 2020 annual volume fell by 34.1% from the record high of 2019.
These declines are expected to moderate further as economic recovery gains momentum and vaccine rollouts lift market sentiment, says CBRE.
CBRE notes that capital is increasingly allocated to multifamily and industrial assets, which combined made up 66.3% of total investment in Q4.
Multifamily and industrial investment volumes fell by 2.1% and 1.3%, respectively, year-over-year in Q4 and by 28.8% and 16.0% on an annual basis.
Office investment improved in Q4 but was 33.5% lower than a year ago. On an annual basis, office, retail and hotel investment decreased by 40.2%, 44.0% and 70%, respectively, taking hard hits from the COVID-19 pandemic.
Cross-border investment returned to pre-pandemic levels in Q4, with $141.5 billion of transactions, accounting for 10.1% of total investment. The majority of cross-border capital came from Canada, South Korea and Germany. Institutional investment had the largest year-over-year drop of 34.7%. Private investors remained the largest buyers.
Institutional investors and REITs/public companies were net buyers in Q4, but their market share fell by 4.9 and 1.0 percentage points, respectively, year-over-year. Institutional investors bought 30% more assets than they sold in Q4.
Multifamily and industrial cap rates continued to compress due to strong market fundamentals and investor demand, while cap rates for CBD office, retail centers and full-service hotels increased by approximately 50 bps from Q4 2019.
The total annual NCREIF return slowed further in Q4 to 1.6% but remained positive, unlike during the Global Financial Crisis. The income return stayed at 4.2% and more than offset the -2.5% total asset depreciation. Nevertheless, industrial asset appreciation remained high at 7.0%.