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News release

CHICAGO, IL

Office Investment Sales Transactions Expected to Boost Volumes in Second Half of 2013

Commercial real estate investment sales volumes rise 18 percent in 1H 2013


CHICAGO, Sept. 16, 2013 — Rising interest rates and the potential tapering of quantitative easing may have given investors momentary pause about committing to commercial real estate, but those two factors ultimately don’t appear to be dampening the enthusiasm that investors of all stripes have for the sector. In the first half of 2013, investment sales in the United States increased 18 percent compared to the same period last year. Transactions may slow in the early part of second-half 2013 given the timing of interest rate increases and quantitative easing discussions, but activity is expected to bounce back strongly later in the third and fourth quarters. In the end, full-year sales volume should increase between 10 to 15 percent when compared to 2012, according to Jones Lang LaSalle Capital Markets. As the second half of 2013 gets underway, global commercial real estate investment sales are firmly on track to achieve a fourth consecutive year of volume growth and could top $500 billion for the year.

“With institutions, private equity, high-net-worth individuals and foreign investors all in aggressive pursuit of commercial real estate, transaction activity in the United States should remain brisk and continue to grow,” said Jay Koster, Americas President for Capital Markets at Jones Lang LaSalle. “In particular, we expect office sales transactions to significantly boost volume in the second half of the year, with activity propelled by improving employment growth within the technology, healthcare, and energy sectors.”

JLL expects to see a continued increase in activity for top-quality assets in secondary markets, as investors, discouraged by the existing low yields on prime assets begin to set their sights higher up the risk curve. Buyers in the United States also will continue to benefit from an array of financing options. While CMBS volumes were very strong throughout the first part of the year, the CMBS world seems to have absorbed the impact of rising rates and volatility, and thus strong competition remains across the CMBS lender universe.  Capital remains widely available from the balance sheet lenders as well, and so our overall debt outlook remains favorable, and capital availability should continue to support the expected level of overall market transaction volume.

As for transaction trends in the individual U.S. property sectors:

  • Investors’ fondness for suburban and secondary office markets continues. In the first half of 2013, most primary markets continued to set a solid pace in office transaction volumes. Overall activity was bolstered by large sales in the CBDs of Chicago, New York and Washington D.C., and primary market share of office sales was 53 percent in the first six months. Capital from Germany, the Middle East and South Korea has been particularly evident in primary markets.
With pricing rising in primary markets, investors also continue to search for yield in secondary and suburban markets. As a result, secondary market share of office sales in the first half was 43 percent. “Activity in Atlanta, Dallas, Houston and Minneapolis is keeping that share strong, and based on the heated investment competition in primary markets, there are very solid prospects for additional sales growth in these areas,” said Marisha Clinton, Director of Capital Markets Research.
  • Investors in hot pursuit of industrial. Investors continue to covet quality industrial properties in primary markets such as the Northern New Jersey, Central PA, Chicago, Texas, and the Inland Empire.  Fundamentals continue to improve, with the ‘big box’ logistics and bulk distribution sector leading the way – major demand drivers are e-commerce, food & beverage distribution, 3PLs, consumer goods and manufacturing. “Class A cap rates have compressed by 50 – 75 bps since the start of the year,” said John Huguenard, International Director and leader of Industrial Capital Markets.  “The large portfolios continue to be highly desirable and price aggressively.  The limited Class A offerings and ability to put out a large amount of capital in a single transaction result in a portfolio premium.” The combination of limited quality product, continued decline in vacancy for bulk product (13 consecutive quarters) and increasing rents, has resulted in both build-to-suit and speculative development in virtually all primary and top-tier secondary markets.
  • Multifamily still appealing. The multifamily sector remains a prized possession among investors, continuing to garner strong interest across the board.  Nearly 250,000 multifamily units are currently under construction in the United States, however, there is little fear that the new supply will temper rent and occupancy growth in the year ahead, as the sector’s underlying fundamentals are so strong that investor interest won’t abate.
    “Because of the favorable demographics and socioeconomic trends facing the apartment industry, the number of markets that core-focused investors will consider for multifamily properties is much higher than for other property types,” said Jubeen Vaghefi, International Director and leader of Multifamily Capital Markets.
    • Retail pricing poised to rise. Sellers will be able to command higher prices for their retail properties. Although occupancy rates and rents continue to rise ever so slightly, there are important signs that the sector could be on the verge of significant improvement, and the market already is seeing higher sales values and decreased cap rates for core assets.

    “With the Conference Board’s Consumer Confidence Index spiking in the second quarter and the home market gathering strength, the U.S. retail market has become the object of much more intense investor interest,” said Kris Cooper, Managing Director of Retail Capital Markets.

    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: http://bit.ly/18P2tkv.

    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 $46.3 billion of real estate assets under management. For further information, visit www.jll.com.