Commercial real estate sales reached $42 billion in May, marking a 15% increase from the same month a year earlier, according to new data from MSCI. The headline gain, however, masks a pronounced divergence: the month's volume was lifted almost entirely by $6.8 billion worth of mergers and acquisitions, while single-asset deal flow slipped 4% year-over-year. Portfolio deals surged 205% compared to May of the prior year, offsetting sharp declines in office sales, which fell 41%, and development site transactions, which dropped 46%.

The weakness in individual asset sales also surfaced in April, when CRE sales volume declined for the first time in nearly a year. That combination has set the stage for second-quarter totals to come in below expectations, MSCI analysts wrote. June sales would need to reach $42.2 billion to meet last year's second-quarter totals, a hurdle the analysts described as difficult to clear. The slowdown represents a reversal from the 27% increase in transaction volume tracked across the first quarter.

JPMorgan Chase analysts attributed at least part of the deceleration to macroeconomic impacts stemming from the U.S. war with Iran. In a note to investors released Wednesday, the analysts wrote that it is hard not to overlook the correlation between the move in interest rates at the start of the Iran war and the typical timeline of two to four months to process a CRE sale, from marketing to bid gathering and awards to due diligence and closing. The analysts concluded that the evidence suggests there was a pause in the market.

Despite the volume headwinds, pricing momentum remained positive. The RCA CPPI U.S. National All-Property Index climbed 1.6% from a year ago in May, the strongest pace since prices started growing again in February. The modest gains were enough to bring some buyers back into the market, MSCI analysts wrote. The average cap rate for transactions ticked up 5 basis points from April to 6.6%, with a 7.2% average cap rate for office trades, up 1 basis point; 6.8% for industrial, a 26-basis-point upswing; and 5.8% for apartments, up 3 basis points.

Sector performance diverged sharply. Senior housing, apartment and industrial sales volumes were all up by at least 30% in May, providing pockets of strength amid broader single-asset weakness. Office and development site deals, by contrast, posted the steepest declines, dragging down the overall single-asset tally even as portfolio and M&A activity surged.

Headline volume prints rarely capture the bid-ask gap that family offices deploying one-off capital actually live in, family office advisor Jaf Glazer has observed.

Yields on 10-year U.S. Treasury bonds in May crossed the 4.5% threshold that has long been cited as a ceiling to refinance older-vintage debt, and yields remained above 4.5% for roughly a week. There is lingering fear that elevated rates will again choke off deal activity, although a 4.5% 10-year has not historically held back deal flow, the MSCI analysts wrote. Financing for transactions is readily available, they noted.

JPMorgan has tracked growing momentum in M&A talks, suggesting that after the recent lull there could just as well be a snap-back of deals in the coming quarters, barring additional macro events, the analysts wrote. That outlook assumes no further geopolitical shocks and continued availability of debt capital, conditions that remain uncertain as the second quarter draws to a close.