Pacific Coast Business Times: Commercial sales continue tumbling in first quarter

Commercial sales activity on the South Coast slowed during the first quarter of 2023, a trend consistent with the path the market was heading toward at the end of 2022. This is also becoming the norm for first-quarter statistics in recent years.

However, even with a more volatile market, solid transactions still occurred as seen in the quarter earning 19 sales at a volume of $40.5 million, not including hospitality sales volume [according to data from Radius].

That said, these numbers are comparatively down from Q4 of 2022, with 24 sales at $110 million, and Q1 2022, with 30 sales at $152 million [according to data from Radius].

It is notable that there was a significant difference in volume as compared to the relatively negligible difference in the number of sales, a result of smaller properties trading as well as fewer trophy properties earning premium pricing. The largest price on a non-hospitality asset hit just $5.5 million.

Additionally, even though the 19 sales count is at least consistent if not ahead of four out of the last five first quarters, a decent amount of transactions that took place came from rollover deal flow from late 2022.

Broken down by category, there were nine office sales, four industrial, four retail, one land and one hospitality. The higher office sale count is indicative of the number of owner-user buyers for the first quarter, at 13 owner-users, 6 investors, and also reflective of the lack of investor demand in the capital markets. Further, 1031-Exchange deadlines were deferred to later in the year, sidelining more investors.

Going forward, the market can definitely be described as in a period of transition due to the repercussions of last year’s interest rate increases and the more recent tumult of the banking sector. Radius reports seeing both seller and buyer reluctance, substantial gaps in pricing expectations, cap rate decompression and deals offered that are difficult to finance in the current lending environment. Radius anticipates deal flow to be lower in Q2 than in Q1 and the second half of the year will depend on the Fed’s next move in conjunction with how other economic issues play out.