U.S. Property Transactions Slow Amid Pandemic

The future of commercial real estate markets is turbulent to say the least. Travel restrictions continue to hammer the hospitality industry, e-commerce continues to push brick-and-mortar retail to the side, and the new normal of working from home adds increased uncertainty to the future of commercial office space. This muddled view has reduced U.S. property transactions significantly during 2020. Lisa Knee, National Leader of EisnerAmper’s Real Estate Private Equity practice, breaks down these trends in the latest article in the Preqin and EisnerAmper series examining the impact of COVID-19 on private equity real estate (“PERE”).

Where are the maverick investors who look for devalued properties? Will we see these distressed real estate properties get absorbed by PERE looking for long-term holdings? Even if a private equity investor can move past the bleak outlook, social distancing and travel restrictions are adding practical challenges to deal origination activities. 

Preqin data shows the magnitude of these challenges:

• Single asset deals fell from $37 billion in Q1 2020 to only $12 billion in Q2 2020.
• Only three hospitality sector deals were completed in Q2 2020.
• Brick-and-mortar deal volume fell from $2.7 billion in Q1 2020 to $0.6 billion in Q2 2020.

Uncertainty in both the market and the deal-making process will continue to plague U.S. property transactions for the foreseeable future. As the country changes to a new normal, opportunities will arise for some investors. Industrial and logistics real estate assets show strong potential as e-commerce continues to dominate the retail world. The Q1 and Q2 industrial and logistic investments of $3 billion and $2.6 billion, respectively, are a positive sign that deals can and will be made during these difficult times. 

Check out the third article in our series: “U.S. Property Transactions Slow Amid COVID-19 Disruption.”