By the Numbers
Overall credit in CRE improves although the riskiest tail gets longer
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Sales volume, prices, days on the market, distressed sales as a share of the total. These and other benchmarks keep pointing to a robust market in commercial real estate. Weak spots remain in hospitality and office properties, where shifts in demand due to pandemic are exacerbating longer-term trends of slower price appreciation. The overall credit of outstanding commercial real estate is improving, although the riskiest tail is getting longer.
The highlights:
- Commercial real estate sales volume has fully recovered to pre-pandemic levels. There were 1,591 commercial real estate repeat sales transactions that closed in July 2021, down modestly from the 2,097 sales in June 2021. Sales in July were on pace with trailing 12-month average of 1,605 repeat sales a month, which is in-line with the average level of monthly transactions recorded prior to the pandemic (Exhibit 1).
Exhibit 1: US CRE transactions (repeat sales, pair count)
Note: The CoStar indices are constructed using a repeat sales methodology. The methodology measures the movement in the prices of commercial properties by collecting data on actual transaction prices. When a property is sold more than once, a sales pair is created. The prices from the first and second sales are then used to calculate price movement for the property. The aggregated price changes from all of the sales pairs are used to create a price index. Investment grade properties are larger-sized, typically 4-star and 5-star quality properties that match the type most often purchased by institutional investors. Any property not meeting the investment grade criteria belongs to the general commercial category.
Source: CoStar
- Liquidity in the CRE market has deepened in the wake of the pandemic and continues to favor sellers. Buyers are paying over 94% of asking prices, a record high. The average number of days a property spends on the market has been flat at 222, slightly above the all-time lows of 2018 and 2019 of 195 days (Exhibit 2). The ratio of listings that are withdrawn from the market by the seller during a given month fell to 23.0% in July from 28.7% a year before.
Exhibit 2: Market liquidity indicators
Source: CoStar
- Distressed sales as a proportion of total sales have so far not increased as a result of the pandemic. CRE sales categorized as distressed have hovered around 2% to 3% of monthly sales volume since late 2017 (Exhibit 3). In July there were 1,591 sales pairs, 276 of those were investment grade properties and 1,315 were general commercial properties. Of those transactions, 6 of the investment grade properties (0.38%) were distressed sales, and 24 of the general commercial property sales (1.51%) were distressed.
Exhibit 3: US CRE distressed sales pairs (% of total sales)
Note: CoStar defines a property sale as being distressed if the most recent sale transaction is an auction, a deed in lieu of foreclosure, a distress sale, a foreclosure, an REO sale or a short sale.
Source: CoStar
- Land and multifamily sectors lead property prices higher, while hospitality appears to have come off the bottom. CoStar’s composite commercial property price index has risen by 14.7% year-over-year as of July, led by land (15.5%) and multifamily (12.4%) (Exhibit 4). The hospitality sector has notched three straight quarters of property price declines, but after falling -11.7% in the first quarter of 2021, the sector clawed its way back to only being down -4.2% year-over-year by the end of the second quarter of 2021. That possibly indicates that hospitality property prices hit a trough, but the latest renewed weakness in hotel data due to the spread of the Delta variant could keep pressure on the sector for several more months.
Exhibit 4: Primary property type indices (equal-weighted, quarterly)
Note: In the equal-weighted index every transaction is weighted equally, regardless of the value of the transaction. An equal-weighted index is heavily influenced by low-value deals where transaction volume is highest, and is considered more relevant for measuring broad market performance of average properties. A value-weighted index is most sensitive to price variations of high value properties and is often used for analyzing capital flows. Both types of indices are constructed by CoStar and complete details and data are available here.
Source: CoStar
- Multifamily property price gains have mimicked home price appreciation in single-family residential. Single-family home prices increased 18.0% year-over-year in July 2021, and were up 1.8% month-over-month, according to CoreLogic HPI and the CoreLogic Case-Shiller Index (Exhibit 5). HPI gains are expected to moderate over the next year, with forecasts of a 2.7% increase from July 2021 to July 2022.
Exhibit 5: Home Price Index and Case-Shiller Trends and Forecast
Source: CoreLogic
- Single-family rent growth has spiked higher, though it has not quite kept pace with HPI. Median rents for single-family detached properties rose by 10.5% year-over-year in June (Exhibit 6), compared to a 4.6% rise for attached homes. This should keep upward pressure on single-family rents. The public SFR operators have already reported much higher rent increases for a new lease as opposed to a renewal, though both have risen sharply.
Exhibit 6: Single-family attached vs detached rental price growth
Source: CoreLogic
The issuance pipeline in CMBS, CRE CLOs and SFR deals has built up and the spigot is opening. Deal flow should be robust through the fall. A 25 bp back-up in rates would really help optics for total return investors, but it will probably take two strong employment reports to produce that move. And by then it’s November. Real estate price growth will almost certainly begin moderating, but the overall context of the market remains very strong.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
