The second quarter of 2024 proved challenging for alternative property sectors, with sales activity plummeting 34% below the average Q2 volume between 2015 and 2019. Despite the tough conditions, MSCI suggests that the market may have hit its lowest point in terms of volume and pricing. This view is supported by major financial entities such as Goldman Sachs and CoStar, indicating a potential stabilization. The office market remains particularly complex, with top-tier Class A properties performing relatively well, while Class B and C properties bear the brunt of the downturn.
Investment volume across alternative property types reached $8.6 billion in Q2, marking a 12% decline year-over-year. Among the various sectors, cold storage stood out as a notable performer, achieving a 44% growth from the previous year with $0.5 billion in sales, split between $0.3 billion in single-asset transactions and $0.2 billion in portfolio sales. Mobile and manufactured housing also experienced a positive trend, increasing by 34% year-over-year with $0.5 billion in single-asset transactions.
Conversely, several sectors faced significant declines. Age-restricted housing saw a modest 2% drop, totaling $0.4 billion in sales, while student housing decreased by 5%, amounting to $1.7 billion. The medical office sector experienced a 7% decline with $2.2 billion in sales. The R&D sector posted a substantial 29% drop, with sales of $1.5 billion. Data centers suffered the most severe decline, with a 66% reduction, totaling just $0.3 billion in single-asset sales.
MSCI highlighted the performance disparity between individual asset transactions and portfolio-level trades. Single-asset transactions, which amounted to $6.4 billion, were down 20% year-over-year but constituted 74% of the total alternative sector volume, surpassing the historical average of 66% since 2017. Portfolio and entity-level trades increased by 27% from the previous year, although this growth was measured against the lowest level of Q2 portfolio trades in over a decade.
The ongoing challenges in the alternative property sectors reflect broader market uncertainties. While certain niches like cold storage and manufactured housing show resilience, others face continued pressure. As the market navigates these complexities, the focus remains on identifying potential recovery signals and adapting strategies accordingly.
Summary
The second quarter of 2024 saw significant declines in alternative property sectors, with sales activity falling 34% below the average Q2 volume from 2015 to 2019. Despite this downturn, MSCI, Goldman Sachs, and CoStar suggest that the market may have hit its lowest point, with investment in alternative property types totaling $8.6 billion, a 12% year-over-year decrease. While cold storage and mobile/manufactured housing showed growth, other sectors, including age-restricted housing, student housing, medical offices, R&D, and data centers, experienced declines. Single-asset transactions performed better than portfolio-level trades, making up 74% of the total alternative sector volume. Investors should approach this sector with cautious optimism, focusing on resilient niches like cold storage and mobile/manufactured housing, while remaining vigilant about sectors facing steep declines, such as R&D and data centers. Single-asset transactions appear to be a safer bet due to their more focused underwriting and better performance metrics, indicating the need for careful selection and adaptable strategies amidst ongoing market uncertainties.
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