The activity of commercial real estate deals remains in a steady decline in facing the rigors of changes in monetary policy designed to fight inflation, including numerous interest rate increases from the Federal Reserve that have increased the cost of borrowing. The sector is also highly affected by the continuous change in how people interact, work, and play in a post-pandemic environment.

Additionally, the general decline in credit availability as well as an ongoing gap between the valuation expectations of sellers and buyers in certain areas in the marketplace, like office, are creating an unpredictability in the capital market despite the solid fundamentals.

However, despite these challenges however, we believe the sector isn’t in a state of crisis because successful dealmakers discover opportunities. There are green shoots visible across all subsectors which includes the much-maligned office sector.

The volume of transactions in the beginning quarters of 2023 were lower across all subsectors, compared to the hot comparative period in 2022.

Explore the latest trends in deals across the nation

• Most notably, office was down 68% due to a slower-than-anticipated return to office, growth in sublease inventories and lease expirations.
• Apartments were not far behind by the decrease of 64. This is due partly to the “return to normalcy” in the terms of occupancy and growth rates, a result to record-setting appreciation as well as growth in rent.
• Hospitality saw an increase of 55. But, the return of leisure, business travel for groups and individuals continues, and the sector’s growth in occupancy and RevPAR has exceeded expectations.
• Industrial production was down 54%, and even though demand is cooling at the national level, occupancy levels are expected to be lower than 5 percent, as supply decreases.
• Retail continues to expand its omnichannel presence with record low availability and a constant need for top areas.

Alongside these primary subsectors data centers and wellness real estate Self-storage, housing for student, and life sciences are now subsectors of their own as they gain traction and recognition as institutional property types.

Transact to transform

Businesses face markets that are being transformed by technological advancements and disrupted by political unrest, a global epidemic and economic shocks. In the wake of this CEOs are looking to acquisitions that transform to change the way they position and transform their business models to achieve long-term growth. Companies are also beginning find out how to make large, transformational deals work: by leveraging their the experience of their predecessors, making an early and consistent investments in integration, and the commitment to developing and implementing sustainable operating models.

Learn more about best practices and transformative mindsets in PwC’s newest M&A Integration report.