Q1 Investment Starts Strong, Finishes Weak

  • The COVID-19 pandemic has forced some states to impose strict stay-at-home orders that are adversely affecting many industries. This is leading the U.S. economy into a recession that will result in very sharp declines in GDP for H1 2020 and in job losses, particularly in the retail, food & beverage and transportation sectors.
  • Q1 investment volume1 increased by 8.1% year-over-year to $116.5 billion and was bolstered by portfolio and entity-level sales, which accounted for nearly 40% of total investment. Single-asset sales, which are a more reliable indicator of demand, decreased by 12.7% year-over-year.
  • The bulk of Q1 deal activity (77%) was in January and February, with volume dropping off significantly in March as the impact of COVID-19 intensified.
  • Cross-border investment has been declining since 2018. For the year ending in Q1 2020, quarterly cross-border volume averaged $10.0 billion, compared with $21.3 billion in 2018. However, cross-border volume in Q1 2020 was higher than in Q1 2019.
  • The total annual NCREIF return fell to 5.28% in Q1, as the appreciation component dipped below 1% for the first time since Q3 2010. Income returns, which have been relatively stable over the past few years, will be impacted by property owners’ COVID-related negotiations with tenants over rent deferral/abatement.
  • Though loan portfolios were well-positioned before COVID-19, delinquency rates that were at or near record lows across all major lender categories undoubtedly will rise in coming quarters.

1 All references to deal volume cited in this report are based on Real Capital Analytics transactional database, which includes entity-level and excludes development site transactions.