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United States

Report | United States Investment Outlook - Q1 2016

Summary

The effects of recent capital markets volatility on transactions is being felt in early 2016.  

The sheer bumpiness of this volatility is further reflected in shifts throughout the quarter itself across global financial and real estate capital markets. 

What started with elevated VIX levels, atypical downward S&P trending with crude oil pricing and a broad lack of consensus around Federal Reserve policy has since shifted into VIX index declines by less than half the quarter’s peak. Regardless of what some believe to be newfound, near-term stability, current pricing levels, cycle longevity concerns and a heightened sensitivity to risk have brought volatility into the real estate capital markets, driving an 11.2 percent decline in first-quarter volumes with early cautionary sentiment expected to impact second-quarter volumes. 

However, strong property fundamentals, a robust and historic level of active capital and alleviated investor angst is expected to drive flat to moderate declines in activity at year-end. Despite volume declines, pricing dynamics broadly remain resilient, with spread levels healthy and cap rates compressing 31 basis points on average over the last 12 months across sectors. With the latter stages of the cycle, the risk of macro or sector pressures impacting markets naturally increases.

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