2013 Investment Property Sales Well Below 2012 Levels

The first quarter of 2013 saw investment sales activity slow down, leaving many in the industry unhappy and frustrated.

However, we were all feeling great in 2011—and that year’s pace is what 2013 resembles so far.
As we anticipated at the end of 2012, the spike in sales activity caused by capital gains tax policy last year has led to a slowdown in activity this year.

knakal silo for web3 2013 Investment Property Sales Well Below 2012 LevelsThe good news, however, is that the dollar volume of sales and the number of buildings sold were ahead of our expectations. We view this as a positive sign for the market for the balance of 2013.

In the first quarter of this year, there was $6.5 billion in investment sales activity citywide. Annualizing this total leads to a projection of $26.1 billion, down 36 percent from 2012’s $41 billion. This total would, however, be down just 7 percent from 2011’s level.

With regard to the number of properties sold (a metric that Concrete Thoughts readers know I believe is a better barometer of market activity), there were 559 properties sold in the first quarter of 2013. If we annualize this total, we would see 2,236 properties sold for the year. This figure would be down 45 percent from the more than 4,000 sales in 2012, but higher than 2011’s total by a small number.

While these figures seem negative at face value relative to 2012’s numbers, it is important to remember that we fully anticipated a significant drop in activity in the first half of 2013 based upon the externality of capital gains tax policy. In early January, we projected a 20 to 25 percent drop in the number of properties sold and, counterintuitively, a slight increase in the dollar volume of sales. We remain firm on both of those projections, as we believe activity will pick up significantly in the second half of the year. In fact, looking at the supply of available properties, we see tangible increases. Massey Knakal was awarded 168 new exclusive listings for sale in the first quarter of 2013, versus just 114 in the first quarter of 2012. We believe that this increase in supply is a market-wide dynamic that, based upon the transaction cycle of six to nine months, will lead to increased activity in the second half of the year.

In the first quarter of this year, the average price of properties sold was $11.7 million, up 16 percent from 2012’s average. The reason for this was twofold. First, there were two large office transactions in excess of a billion dollars, which the market hasn’t seen since 2011, and second, there was an appreciation in values. Activity in the large office building sector is the main reason we believe that the dollar volume of sales will increase this year while the number of properties sold will drop tangibly. Thus far, these projections appear to be on track.

The fourth quarter of 2012 had an enormous level of activity by dollar volume: $19.4 billion of sales activity closed, the second-highest quarterly total ever recorded, just slightly below the first quarter of 2007’s $20.4 billion. If we look at the $6.5 billion in sales activity in the first quarter of this year, we see that it is fairly consistent with the prior eight quarters, with the exception of a spike in the fourth quarter of 2012. Therefore, market participants should be feeling pretty good about that number.

With regard to the number of properties sold, the end of the year was iconic. In the fourth quarter, 1,677 properties traded hands, an all-time record by a significant margin (250 properties!). There were 559 properties sold in the first quarter of 2013. This is down significantly from the new quarterly record. However, it is around the level we saw throughout most of 2011 and into early 2012.

Market participants were feeling pretty good during those periods. Given the predicted acceleration in activity as we move into the year, we expect more than 3,000 properties to sell this year.

No, it’s not going to be 2012 again, but it could be a heck of a lot worse.

Robert Knakal is the chairman and founding partner of Massey Knakal Realty Services; in his career he has brokered the sale of more than 1,300 properties, with a market value in excess of $9 billion.

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