Q1 2023 (2022 vs. 2023) 


Higher Interest Rates Take a Toll and Lead to Lower Commercial Property Sales

Summary Highlights from Q1 2023


  • This was the lowest quarter for sales volume since Q2 2020, the period following pandemic shutdowns.
  • It was also the 6th consecutive quarter of downward trends in sales volume, and the 5th consecutive for number of sales.
  • There was a 25% drop in the number of sales and a 71% drop in sales volume compared to Q1 of 2022.

CBA's Commercial Market Analysis (CMA)Sales Report analyzes quarterly economic and commercial real estate sales activity and trends at the market and submarket levels. We are pleased to offer this detailed analysis and report for your use and interpretation. 


This report compares same-month and quarterly numbers by asset class and Washington’s six largest counties from 2022 through 2023.


Summary: Impact of Higher Interest Rates

After a full year of interest rate hikes from the Federal Reserve, the data and results are in, and the impact on Washington’s commercial property sales markets is significant, to say the least. Commercial property sales volumes in Q12023 were down 70.6% and transaction counts were down 25.3% compared to the prior year.


While the transaction counts of smaller commercial property sales are down, they are still relatively active. But the market for institutional-grade, investment properties over $50 million has virtually shut off over the past year. CBA tracks these notable sales, and during Q1 2023, there were only two properties selling in excess of $50 million, both multifamily trades. This compares to 17 sales over $50 million in Q1 2022, or a 90% drop. For reference, there were around 59 sales of over $50 million in all of 2022.


These dramatic declines come after the Fed aggressively raised the Federal Funds rate to combat high inflation and attempted to correct other imbalances in the US macroeconomy. After 9 rates hikes from Q1 2022 to Q1 2023, as well as 2 regional bank failures (Silicon Valley Bank and Signature Bank) in Q1 2023, inflation remains stubbornly high with CORE CPI over 5% and labor markets remaining persistently tight with US unemployment below 3.5%.


Counties & Asset Classes

Comparing Q1 2023 to Q2 2022 on a county level, the largest declines in activity were in Thurston and King. Thurston was down 45% in the number of sales and down 87% in sales volume, while King dropped 35% in the number of sales and 78% in volume. Snohomish increased in sales velocity by 3% but dropped 36% in volume. Kitsap had 11.5% growth in volume, but a decrease of 24% in velocity. Pierce was -24% in sales, and -67% in volume, and Spokane was -14% in sales and -9% in volume.


Looking by asset class, only Land showed gains, with a 23% increase in the number of sales when comparing Q1 2023 to Q1 2022. However, Land was down 51% in sales volume. Everything else was in the red. Office was -31% in sales and -84% in volume, Retail was -34% in sales and -60% in volume, Industrial/Flex was -12% in sales and -67% in volume and Multifamily was -41% in sales and -68% in volume.


Market Outlook

The big question remains: Where is Washington’s commercial property sales market headed given the state of the economy and upcoming Fed actions? Leasing fundamentals across the main asset classes remain particularly solid with one exception. Leasing for multifamily, retail, and industrial sectors continues to perform well, with low vacancies and rising lease rates. Office leasing is the big exception, particularly in downtown Seattle and Bellevue. Vacancies continue to rise and there is downward pressure on rental rates.


Fortunately, for those property owners with strong leasing fundamentals and high levels of equity in their properties, they are likely to ride out this part of the rate cycle as long as they can, unless they have debt maturing, and need to contemplate a sale. Waiting, or at least waiting until there is a pause in increases, could offer more upside. Therefore, until there is more certainty around knowing where the peak of the interest rate cycle will be and possibly more stability in the banking sector related to regional banks, we expect the market for large, institutional-grade investment sales to remain slow through the remainder of 2023.


In the office sector, particularly in other tech-heavy markets like San Francisco, loan defaults and distressed properties are becoming more prevalent. Given the similarities in market profiles, some are speculating similar dynamics could be headed for the Puget Sound area. But, through the first quarter, those have yet to materialize.