The Broker’s Challenge: Finding Deals in a Slow Market

Patience has never been one of my stronger points. I don’t like waiting in line or in stopped traffic. I can’t sew tiny, even stitches. I like to know how the story ends as quickly as possible, whether it’s a book, a movie or an entire season of a TV series.

So I can’t imagine the challenge of being a broker in the current economic cycle, riding the transaction roller coaster from the stall-out when COVID hit U.S. shores to the pickup in the past couple of years to today’s wait-and-see interest rate climate. Investors and lenders don’t have it easy right now, either, but brokers, as many have told me over the years, require some kind of activity to ply their trade. Whether an up or a down market, as long as deals are happening, they’re in business. It’s when not much is happening that things get challenging. Like now.

Transaction volume fell significantly last year, as evidenced by our annual ranking of Top Brokerage Firms. Sales volume came in at a total of $449.7 billion for the top 20 firms on this year’s list, down from $791.2 billion in 2022 and $855.7 billion in 2021. Leases were harder to quantify, and we switched to measuring dollar volume rather than square footage as values have dropped and companies have reduced the size of their offices, industrial space and retail stores.

While office properties still comprised a surprisingly significant percentage of investment transactions last year, they were also a big contributor to the sales slowdown. And the pace has largely continued to slow, according to CommercialEdge data. First quarter 2023 saw 434 transactions close totaling $7.7 billion, followed by further reductions in the next two quarters. There was a fourth-quarter rally to 443 transactions totaling $9.6 billion, but first quarter 2024 saw a drop to less than half the volume of the year-earlier first quarter. The average price per square foot has fallen steadily, as well.

But investors waiting for distress buying opportunities will have to wait longer. In the first quarter, they totaled just $3.1 billion across all property types, a mere 3.9 percent of total deal volume, Joe Gose noted in the June article “Deal-Thirsty Investors Continue to Wait for CRE Distress.” That doesn’t mean the distress isn’t there—in fact, MSCI Real Assets counted almost $300 billion in a combination of existing and potential distress during the quarter. But unlike the Great Financial Crisis of a decade-and-a-half ago, “we haven’t seen an onslaught of assets going to auction,” Crescit Capital Strategies’ Joseph Iacono told Gose.

And where does that leave brokers? Continuing to compete for fewer deals for awhile, certainly. Practicing patience while honing skills, preparing for the market’s next phase.

Read the June 2024 issue of CPE.