CRE’s Liquidity is on the Decline Again
With all of the capital chasing what often appears to be too few investment opportunities, one key metric is on the decline across most U.S. commercial real estate markets: liquidity. Real Capital Analytics reported that of the 55 U.S. markets the firm tracks in its RCA Capital Liquidity Scores, 35 registered lower liquidity scores at midyear.
Compared to what the industry saw in 2009 and 2010, when illiquidity reached Himalayan peaks, the downward trend isn’t quite as steep. Yet RCA data point to a recent pickup in liquidity declines after holding comparatively steady for most of 2017.
“Headline volume has been boosted by massive multibillion-dollar portfolio transactions and company buyouts,” writes RCA analyst Elizabeth Szep. “Under the surface though, other indications of overall market health and liquidity are waning.”
Those nine-and 10-figure portfolio sales and entity-level deals may make news, but at the same time they’ve translated into ”a drop in the number of active buyers—an input in the construction of the liquidity scores—over the past several years,” Szep explains.
At midyear, six of the U.S. markets RCA tracks showed neutral growth, between -1% and 1%, in their liquidity scores compared to a year ago, Thirty-one markets posted a decline deeper than 1% , while 18 markets posted an increase greater than 1%.
Szep notes that the drop-off in liquidity runs across market tiers. “Top tier cities like Boston [pictured] are posting liquidity declines, and secondary markets like Charlotte are contracting as well,” she writes. Likewise for Austin, Miami and the East Bay.
Similarly, RCA’s scoring points to variation among the markets where liquidity increased. “Primary markets like the D.C.-Virginia suburbs are posting higher liquidity, and so are select second tier markets such as Nashville and Minneapolis,” writes Szep.
That being said, most of the liquidity gains are at lower percentages, more so than the drop-offs in liquidity in the cities where it has declined from a year ago.
For comments, questions or concerns, please contact Paul Bubny
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