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SALES VELOCITY: Surge In Total Office, Hotel Sales Provide Huge Boost in First Quarter Volume

Total Sales Up 47% from First Quarter of Last Year
May 4, 2011
First-quarter data from CoStar Group shows investment sales activity for commercial property continuing to increase. For all property types, first-quarter sales totaled more than $47.86 billion. That amount is significantly higher (more than $16 billion in some cases,) than the amount of property sales reported for the same period by other analytic firms in the past two weeks.

CoStar Group's number is a 47% increase from the first quarter of 2010, and an 83% increase over the first quarter of 2009. And CoStar said it expects the total sales volume to increase as additional first quarter sales are researched and confirmed.

Almost all property types registered healthy increases on a year-over-year basis. Office and hospitality sales in particular were up sharply, with trades increasing 106% in both categories. Multifamily followed, up 36%, retail up 23% and industrial 21%.

Only sales of land showed sluggishness, down 9% quarter-to-quarter, reflecting the general economic malaise and lack of demand for new development. Land sales totaled $3.83 billion in the first quarter.

Meanwhile, sales of office property topped $12.48 billion so far in the first quarter; multifamily, $9.09 billion; retail, $8.74 billion; industrial, $5.38 billion; hospitality, $5.06 billion; and other commercial property types, $3.24 billion.

Distressed asset transactions in the office market accounted for 23% of all transactions in the first quarter, which is the second highest level of distress for all property types and consistent with office transactions in fourth quarter 2010. In first quarter 2011, hospitality had the greatest share of distressed sales at 32% of transactions; multifamily was at 21%, industrial 19% and retail 16%.

The Washington, DC, market slightly edged out New York City for the highest sales volume in the quarter with nearly $2 billion -- a 348% year-over-year increase. New York was the only other market to post more than $1 billion in sales volume, increasing 166% year over year. Boston sales volume increased 62%; Los Angeles increased 202% and San Francisco sales volume in the quarter was more than four times as high as the year-ago quarter.

Office Trends

"The increase in office property sales reflects both the continued investor appetite for premium properties in the gateway markets, as well as an increased appetite for similar properties in non-gateway markets such as Houston, Dallas, Denver and even Phoenix," said Chris Macke, senior real estate strategist for CoStar Group. "Institutional investors overtook public REIT's as the largest net buyers of office properties in the first quarter both due to the significant decrease in disposition activity by institutions and the material decrease in first quarter acquisition activity by public REIT's"

Institutional buyers and REITs bought more assets than they divested in the first quarter. Institutional buyers posted the greatest net buying volume this quarter with $1.4 billion (net) and $2.9 billion (total) purchase activity.

Publicly held REIT's purchased a total of $2.4 billion in office assets resulting in $1.1 billion buying activity net of sales. This is the first time since CoStar has tracked activity by owner type (2009) that REITs did not have the highest quarterly net buying activity for office.

Nontraded, private REITs purchased $798.3 million in office properties and sold just $58 million.

A significant trend in investment sales are recapitalization transactions. Existing owners are selling significant stakes of equity to new investors as a means of infusing capital into properties as a means of refinancing, or to secure additional cash necessary for capital improvement projects, or stave off lender actions. Recent examples of such recapitalization deals include 3 Columbus Circle ($278 million) and 1 Park Ave. ($375 million) in New York City and 330 N. Wabash Ave. ($75 million) in Chicago.

Retail Trends

Private equity investors posted the greatest net buying activity with nearly $1 billion in net purchases during first quarter 2011. The two largest retail deals of the quarter comprise the majority of private equity's purchase activity: Jamestown's $181 million purchase of Alameda Towne Centre, and Madison Realty's $672.3 million purchase of a 49% stake in 15 Forest City shopping centers located within the greater New York City metropolitan area.

Private sellers posted the greatest divestment activity for the quarter with $1.2 billion in shopping center sales yielding $570 million in net sale activity since the start of 2011. More than $1 billion of private seller activity in first quarter was comprised of regional and national owner/developers.

The Chicago market posted the highest sales volume in with nearly $608 million in sales -- more than doubled relative to the first quarter a year ago. The East Bay/ Oakland market demonstrated the strongest improvement of the top markets with a 548% growth in year-over-year retail sales volume and total of $553 million for the first quarter.

Industrial Trends

REIT's had the greatest net purchase activity in the industrial property sector with net activity transaction volume of $312.4 million and a total purchase activity of $480.3 million. Private owners exhibited the greatest divestment activity with $915.4 million in sales volume yielding a net sales activity of $178.5 million.

The Los Angeles market posted the highest sales volume in the quarter with $372 million in sales -- a 40% increase from a year ago. Chicago sales volume increased 17% over a year ago. South Florida posted the most significant growth in year over year increase at 174% of year-ago volume. This growth was driven, in part, by Duke Realty's aggressive acquisition strategy in the South Florida market.

Keep up weekly on national news, trends and property leads with the Watch List Newsletter, a weekly pdf that includes other news and leads not found on the CoStar Group web news pages. Sign up for the Watch List E-Mail Alert. A new issue is published late each Wednesday.

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