U.S. commercial property transaction volumes increased 3% year over year in May, a major drop from the pace of growth during the first quarter of the year and indicative of the growing impact of inflationary pressures and rising interest rates, MSCI Inc. data showed.

Nationally, property transaction volumes equaled $45 billion in May, up from $43.8 billion during the same month in 2021.

That increase was an improvement on adjusted numbers for April, which showed less than 1% growth, but represented a major drop from the first quarter: January year-over-year growth was 55%, while February and March were 79% and 62%, respectively.

The U.S. Federal Reserve increased interest rates this year to counter rising inflation levels. This has impacted real estate deals that no longer qualify as economical, MSCI researchers wrote in a recent U.S. capital trends report.

Economists have said that the pace of real estate transactions will continue to taper this year as the economic slowdown will reduce demand for various commercial property types.

Office properties had the biggest decrease in transaction volume, falling 34% year over year in May to $5.1 billion, MSCI data showed. Industrial properties were next, falling 20.1%, while development sites fell by 19.5%.

Conversely, hotel volumes had the biggest increase, rising 35.9% year over year in May to $3.1 billion. Retail volumes increased by 33.9%, while apartment volumes increased by 22.1%.

Despite the overall muted pace of growth, MSCI found that transaction volumes in May were 5% higher than the average during the five years prior to the pandemic.

Current market conditions may be advantageous to some buyers as there is less competition for certain property types. While the total count of buyers has remained flat on a year-over-year basis, the institutional and real estate investment trust buyer classes have seen a greater number of investors transact, MSCI said.