Second quarter transaction volumes for commercial property remain severely depressed and changes in pricing are moving slower than expected, according to new data by CoStar Group, a leading commercial real estate analytics company.

Early impacts from the coronavirus pandemic saw sudden investor pullback around mid-March, resulting in sales volume in the commercial real estate space to plunge. Deals for the quarter are still being reported, with final numbers coming down the pipeline soon, CoStar is predicting a 65% to 70% decline year over year.

“A great deal of uncertainty remains in the market,” said Andrew Rybczynski, managing consultant at Costar Advisory Services. “Rent collections held up in many property types, but with coronavirus infection rates rising and extended unemployment insurance due to expire at the end of July, a wait-and-see approach prevails, understandably.”

Rybczynski told MPA that deals are failing because buyers and sellers are failing to come to an agreement on price. Of course, different sectors are continuing to feel different impacts from the pandemic. Industrial has mostly remained unaffected, while multifamily has been propped up by government assistance to renters. Unsurprisingly, their data shows a 90% decline in hospitality deal activity compared to last year.

Property purchases by institutional investors, which typically make up a little more than half of all sales volume, plunged to less than 40% in the second quarter, compared to Q2 in 2019. Individual investors saw a bit more action in Q2, but Rybczynski says absolute figures are still greatly depressed. The number of for-sale listings added to CoStar on a weekly basis continues to increase, according to the report, but the total still trails previous years by between 10% and 15% overall.

“Smaller deals are more likely to transact in the current environment, as they reflect higher relative interest by individual investors with less capital to allocate,” he said.

These smaller deals however are not necessarily translating into big price swings, he says. Based on repeat sales-analysis, Co-star found that pricing for deals that did transact in the second quarter were not too far off from prior levels.

“Price growth was already decelerating for most property types prior to the pandemic, with the exception of industrial,” said Rybczynski in the report. “All property types also experienced weaker price growth in this year’s first quarter than in the same period of 2018. Retail and multifamily in particular, were already showing a downward trend in pricing appreciation, and the slope of that downward line did not increase unduly in the second quarter.”

Uncertainty continues to mount across the country, as new coronavirus cases continue to increase, Rybczynski says ‘the wait-and-see’ still feels like the right approach.

“At some point we expect to see an increase in distressed or high-vacancy deals that will affect pricing in a more negative way. Retail looks particularly susceptible to distressed pricing right now.”

He adds that while the Great Recession started at the end of 2007, the impact on pricing took about a year to fall in multifamily and about a year and a half for other property types, while transaction vlumes fell in less than six months.

“The current volume drop-off is certainly more precipitous than the last one, meaning there is room for pricing to fall faster as well,” said Rybczynski. “Today though, the biggest signal of weakness is the sharp drop in transaction volumes.”