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News release

CHICAGO, IL

Commercial Real Estate: Back in the Game for Good

Multifamily hits a homerun with nearly $35 billion of transaction in 1Q 2013


CHICAGO, May 15, 2013 — The year began with lingering debt ceiling issues and budgetary policy measures that were unresolved. Despite the instability, the commercial real estate transaction market in the first quarter of 2013 is back in the game with better-than-expected activity in excess of $63 billion[i], according to Jones Lang LaSalle’s Capital Markets preliminary numbers as of early May. This uptick in transaction volume pushed the market to its highest mark in a first quarter since 2007.  Low interest rates and government yields, which have existed since the financial crisis, continue to support an attractive lending environment and fuel the funding of investment activity.


“Some clarity formed during the first quarter and the growth we witnessed is on par with our previous expectations, particularly if you exclude large portfolio transactions.  The market recovery continues to gather momentum with moderate pacing and is positive relative to 2012, as attractive debt and equity financing options fuel growth,” said Jay Koster, President of Jones Lang LaSalle’s Capital Markets Group. ”We likely won’t see the spikes the market witnessed as we exited the recession. However, we do expect transaction volume for the year to increase 15 to 20 percent over 2012 levels.”

Urban Land Institute’s Emerging Trends in Real Estate report concurs and indicates, “The U.S. property sectors and markets will register noticeably improved prospects compared with the previous year, and the advances gather some measure of momentum across virtually the entire country and in all property types.”

The play-by-play

  • Based on preliminary estimates, the retail sector has only made a grounder to first base, trailing behind in the first quarter with $8.2 billion in transactions, down nearly 29 percent over last year. Despite the slowdown, the retail pipeline remains robust and the sector could be headed towards a double. REITs will continue to dominate the ownership of Class A malls and fortress centers. Private equity and institutional investors will continue to eye grocery-anchored strip centers in core markets and single tenant properties.
  • The office sector took a less prominent role in the first quarter, making it to second base as transaction volumes increased nearly 19 percent. The sector surpassed the height of 2008 levels, as the first quarter saw close to $18 billion of office transactions; however, it still lags behind other sectors. High-quality office cap rates compressed to 5.8 percent, remaining below 6.6 percent for overall office. Investors will continue to eye well-leased buildings in core markets, and some secondary growth markets, however, fundamentals may not match investment activity.
  • Industrial made its way to third base, passing retail and office with a solid 29 percent increase in transaction over last year. Industrial remains the underdog of the market, as the sector recorded $6.3 billion in first quarter 2013. As e-commerce expands, institutional investors will seek out major shipping hubs and big-box space that have steady returns and low risk.
  • Multifamily continues to be the cleanup hitter of real estate, hitting a home run in the first quarter. It reigned the top sector for investment with nearly $35 billion of transactions, over a 180 percent increase over the same period last year. The sector recorded almost double the sales volume of office properties with several mega portfolio sales occurring in February, as well as JLL’s notable $322 million sale of Archstone Crystal Towers, the largest single property multifamily sale in Washington D.C. history. Shallow development in years past will keep the market tight with mid to low vacancy rates across core markets.

While the outlook is promising across each sector, investors flight to “safe havens” remains very evident. Manhattan, Los Angeles and Washington, D.C. led the gateway markets, while large deals in Seattle, Houston and Dallas rounded out the top three secondary markets in the first quarter. As the year progresses, competition should pick up in secondary and tertiary markets, as primary markets don’t have enough product to sustain demand. Both lenders and investors appear to be far more comfortable transacting at the portfolio level in those markets as it’s easier to assess general market risk rather than isolated asset risk. 

“In the year ahead, we expect more of a transitional paradigm shift that will show further growth in secondary market activity in 2013 and into 2014,” explained Marisha Clinton, Director of Capital Markets Research. “We expect this growth to be influenced greatly by the impact of technology and energy on these markets as property values in the United States gain traction and investors increase their willingness to move further along the risk curve in their search for yield. Whether the investor chooses to transact in a primary or secondary market, safety and stability remains favored in highly occupied properties.”

Koster concluded, “The anticipated reduction in investment sales volume due to possible tax ramifications never materialized across many core markets last quarter, and we expect a stronger second half of the year with anticipated growth across all sectors of the market. The key thing for investors is to watch for errors and be aware of shifts and any economic or fiscal signals that may point to a change in course. Continued global uncertainty and any disruption in our own domestic recovery efforts could cause spreads to widen, leaving them off base.”

Jones Lang LaSalle Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2012 alone, Jones Lang LaSalle Capital Markets completed $63 billion in investment sale and debt and equity transactions globally. The firm’s dealmakers completed $60 billion in global investment sales and buy-side transactions, equating to nearly $240 million of investment trades completed every working day around the globe. The firm’s Capital Markets team comprises more than 1,300 specialists, operating all over the globe.

For more news, videos and research resources on Jones Lang LaSalle, please visit the firm’s U.S. media center Web page.  Bookmark it here:  http://j.mp/1807d6h

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management. For further information, visit www.jll.com.


[i] Real Capital Analytics reported Q1 2013 transaction volume at $72.8 billion and includes multifamily, retail, office, hotels, senior housing development sites and industrial sectors