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Disruption 2020 - Early Signs Of A Stalling Boston Sales Market

Author: Aaron Jodka

By Aaron Jodka | May 2020

Looking at first quarter numbers, the Boston investment sales market was rocking and rolling. Sales across the major property types (apartment, hospitality, industrial, office, and retail) hit $4.7 billion – the third-strongest start to the year on record. The only years that topped this were 2016 and 2007, when major REITs went private, BioMed in 2016 and Equity Office in 2007. Volume was down slightly compared to fourth quarter 2019 figures, a rarity. Looking back at Real Capital Analytics’ (RCA) history, volume in most first quarters has declined sizably from the previous fourth quarter. In Boston, however, headline deals starting the year included the largest single industrial sale ever, several office tower transactions downtown, the sale of 955 Mass Ave in Cambridge, and major suburban office purchases such as Ledgemont in Lexington. Nationally, volume fell an average of about 28% across these property types.

Disruption2020_Sales Comp Chart

It is still early in the second quarter, and collection of data is trickier than normal with the Registry of Deeds operating under limited capacity during the pandemic. As of May 20th, RCA has recorded 17 closed sales transactions for the month of April. Volume is still strong, at just shy of $1.6 billion, up 8% from April 2019, thanks to some headline deals, 245 Summer Street, 27 Drydock, and The Post chief among them. All but $136.3 million was driven by office deals. This is a likely last gasp, as pre-COVID-19 deals will have worked their way through the system by May and June. We expect those monthly figures to show a massive pullback in volume when compared to year earlier figures. Average second quarter sales volume dating back to 2001 is $2.4 billion, but as with property fundamentals, it is too early to tell how this will all shake out. Looking at history, we can get guidance on how investors responded in past cycles.

After the dot-com bust and 9/11 terrorist attacks, sales volume in the major asset types fell to $186 million in the first quarter of 2002, with 20 total sales. During the Great Recession, volumes fell to $266 million in the second quarter of 2009, a 97% decline from the cyclical high. However, that high point marked the all-time quarterly peak in sales volume due to the EOP trade. In the first quarter of 2009, just 20 sales took place.

Disruption2020_TotalVolumeGraph

The capital markets, while flush with capital, have certainly paused. Price discovery is nonexistent for new deals. Institutions are on the sidelines, but private capital remains in the hunt for opportunities that match their appetite. In contrast to the Great Recession, the financial markets are not broken. Colliers has been a party to deals getting done, even when a buyer could have backed out due to the pandemic.

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