New research from Real Capital Analytics (RCA) shows that the pandemic is not only making it harder to complete commercial real estate deals, but that the number of terminated contracts is rising.
According to the report, which surveys global deal flows, the phenomenon is affecting markets across the US, Europe and Asia Pacific, while also upending financial and economic projections.
In Europe, the level of collapsed deals as a percentage of closed deals totalled 3.0% in May, 200 basis points above the long-term average level for the continent. The UK has been the hardest hit market within Europe, with deals falling out of contract concentrated geographically in Britain, as well as within the office and retail asset classes.
'In one such transaction, Orion was willing to forfeit a £21 mln deposit when it walked away from a deal to acquire seven retail parks from Hammerson,' reports RCA's Alexis Maltin.
In the US, the number of deals falling out of contract reached 2.9% of closed deals in May, up from 2.1% in April and 0.7% in March. While levels in May have reached more than seven times the average percentage during 2015-2019, the figure is below the peak Global Financial Crisis levels, when around 12.8% of all deals failed to complete in January 2009.
'Based on dollar volume, Mirae Asset’s termination of its $5.8 bn plan to purchase US luxury hotels from Anbang Insurance is the largest busted transaction to date,' Maltin adds.
Asia Pacific saw a lower percentage of deals - 2.6% - fall out of contract in May than in April, when a percentage of 4.5% was registered. Yet even at 2.6%, the rate of collapsed deals is still 120 bps above the long-term average level, with Chinese and South Korean property markets the hardest hit.
'These two countries accounted for over 90% of the assets involved in terminated transactions in the region, and over 80% of the volume. In May, Blackstone ended its discussions to acquire Soho China, making it the largest busted transaction in the region,' Maltin states.
