Why Are Great Real Estate Deals So Hard to Find?
Investment sales have slowed dramatically in response to coronavirus prompted market uncertainties. As federal stimulus dries up, and the Federal Reserve's desperate measures to inject liquidity fail to foster the desired confidence in market participants, there will be opportunities. Until then, deals are in short supply.
In fact, some of the hottest pre-recession markets have seen the most significant decline in investment sales. Raleigh saw an 84% decrease in transactional volume in the second quarter of 2020, relative to its trailing four-quarter average. This represents the steepest dip across metro markets in the United States. Stagnating deal flow is not unique to Raleigh, though, nor is it necessarily indicative of a struggling marketplace.
Why Are Great Real Estate Deals So Hard to Find?1. Market Dislocation: As lenders continue to evaluate their loan portfolios and the federal government hints to even more stimulus, the actual distress in the market is mostly unknown. Commercial real estate currently resides in a phase of price discovery; owners still believe their property should garner pre-COVID prices, while buyers are already looking for deals on distressed assets that haven’t become apparent. The dichotomy between their expectations clouds the marketplace.
2. Owners Need a Place to Put Their Money: The recent volatility in equity markets has investors jumpy, and for a good reason. Fixed income instruments don't offer a much rosier outlook either, especially over the short-term. Aside from gold and silver, commercial real estate provides the safest hedge against inflation; with properly structured leases in a well-positioned product type, rent can offer regular income production with little downside risk.
3. Expansion Plans are on Hold: Future growth and revenue uncertainties have put expansion plans on the backburner. Owner-occupiers are less inclined to trade buildings or add a new product line during market stalls because the risks outweigh any perceived benefit. Many landlords who were planning on retirement in the next year have pushed their schedules back, hoping to ride out the short-term ambiguity and sell at the top of the market. Humans cling to what’s familiar during uncertainty.
4. Lack of Quality Inventory: Rising building costs and cumbersome government regulations have made new construction unrealistic for many users. Constrained credit markets and changing post-pandemic consumer habits have many developers abandoning and delaying projects. Users find that even in a market with almost no vacancy, it is cheaper to buy an existing building than develop one.
Why Does a Real Estate Broker Matter?
Just because good deals aren’t apparent, doesn’t mean they don’t exist. Most great deals close before they hit the market. A broker's market saturation is the key to capturing those opportunities. Deliberate, process-driven brokerage delivers outstanding results in a well-functioning marketplace and provides a foundation even during periods of uncertainty.