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United States

Report | Industrial Investment Outlook - Q2 2016

Summary

First half year-over-year investment volumes were down 47.2 percent, a drastic reduction in overall activity at first glance. However, if the five largest industrial transactions—all deals over $250.0 million—were excluded, total volume for the first half were only down 8.0 percent since last year. The investment environment will remain robust throughout the close of the year as investor demand for industrial assets further advances due to the pronounced overall strength of industrial fundamentals. Total volume is expected to be more subdued than last year’s record-breaking total. However, excluding the five largest transactions of last year, volumes will likely continue experience growth in the industrial sector.

Single asset and portfolio transactional ratios exhibited a persistent reversal from the first half of 2015, as single assets dichotomously represented the vast majority of volume in 2016, outpacing portfolio activity on a 3:1 ratio on a dollar basis. Despite the overwhelming ratio of single asset to portfolio transactions exhibited in the second quarter, portfolios remain active, accelerating over 30.0 percent since the first quarter. However, the profile of portfolios is shifting: Single market portfolio activity represented the vast majority of portfolio transactions, accounting for nearly 75.0 percent of all portfolio volume in the second quarter.

Global increases in volatility and the now pressing unknowns surrounding the European markets due to the pending Brexit are further benefitting the strength of the U.S. dollar and could further benefit U.S. assets, particularly within commercial real estate. With capitalization rates for all assets relative to these long-term Treasury rates now far exceeding those spreads experienced in the previous cycle, spread compression is expected over the next 24 months. Nationally, in a broader asset context, Class A industrial asset pricing across almost all U.S. markets continued to test or exceed JLL observed ranges. However, despite the continuance of slight cap rate compression for Class A assets, buyer selectivity is increasing with a greater focus on maximizing existing asset cash flows and credit tenant exposure.

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