What a difference a year makes. You hear that a lot around the commercial real estate industry today, especially when it comes to the overall investment sales market.

 

According to new data from New York-based researcher Real Capital Analytics (RCA), sales volume reached $15.4 billion, which is a 50% increase from the first quarter of 2009. More good news: Every property type registered higher volume.

 

Surprisingly, despite the huge overhang of distressed properties, it was core rather than distressed sales behind the volume gains. Sharp declines in cap rates were recorded for certain assets due to competition among buyers and the rapidly improving debt markets that are allowing buyers access to low interest rates.

 

RCA is quick to point out that “While the improving conditions reflected in the Q1 data are positive, there are still headwinds, transaction activity is still low and the Q1 results do not necessarily signal a widespread, sustained rebound.”

 

Still, good news is good news. As the sales increase and the light of recovery shines brighter, greater differentiation in trends among the property types is returning. Clearly the office sector led the rebound in Q1 with a 100 bps drop in cap rates that further analysis reveals was broad-based across markets and property characteristics.

 

Sales of significant office properties reached almost $5.1 billion in the first quarter, marking not only a 37% year-over-year gain from Q1 2009, but also the first quarterly year-over-year gain achieved since Q3 2007. Though the dollar volume growth was more impressive than the growth in the number of assets traded, both were positive. Suburban asset sales totaled $3.2 billion compared to $1.8 billion in CBD transactions.

 

Apartments saw the greatest spike in transaction volume in the first quarter, and although the drop in apartment cap rates was more modest than in the office sector, it was the second quarter in a row in which yields declined.

 

Average cap rates for industrial and retail assets were relatively unchanged in Q1 overall, but even in these sectors compression in cap rates is evident for certain subsets of properties and markets.

 

In one of the more interesting findings, the percentage of sales out of distress slowed markedly for office, industrial and retail in the first quarter, as lenders continue to extend loan maturities and distressed situations and delay sales until the sales market sees continued improvement. Distress sales are meaningful only in the apartment and hotel sectors at present.

 

All of the recent good news has a caveat, of course, considering that Q1 2009 marked the bottom of the recent downturn. Also, this year’s first-quarter volume was the fourth lowest of the past decade.

 

RCA also notes that increases are only for dollar volume and the number of properties that traded was flat or even down for some property types. However, the resulting increase in deal size also represents another significant change in the market from a year ago and can be interpreted as a healthy sign.