At half-way point, CRE investment continues at healthy pace
Opportunities for best-in-class product and scale enticing investors, boosting volumes in H1
CHICAGO, August 15, 2018 — Stronger than expected commercial real estate investment sales volumes continued to power the sector through the first half of 2018. While elevated new supply, rising interest rates and the continued low-yield environment are weighing on investors, an uptick in high-quality opportunities enticed investors to keep capital flowing. According to JLL's H1 2018 U.S. Investment Outlook, commercial real estate volumes for the first half of 2018 rose 3.4 percent year-over-year to reach $194.9 billion.
"As the cycle continues to press on, investors are displaying appetite for the commercial real estate sector," said Sean Coghlan, JLL Senior Director of Investor Research, Americas. "Pockets of the market are seeing exceptional manifestations of liquidity with investors in pursuit of scale and market share. With the economic outlook and commercial real estate fundamentals remaining favorable, we now expect volumes to be down just 5 percent year-over-year."
Domestically, buyers have increased a focus on primary markets, which experienced an investment increase after three straight years of declines. Globally, the U.S. remains a top target for foreign investors. The appetite for industrial and alternatives similarly remains high, with multifamily being a growth sector. Canadian and European investors drove activity as interest rates and hedging costs muted select Asian investment.
Added Jonathan Geanakos, JLL President of Capital Markets, Americas, "Foreign investors continue to regard the U.S. as the top landing spot for investment. Their commitment to the U.S. speaks volumes about the health of our real estate sector and economy, and we expect this to remain the case as the cycle progresses."
Investors continue to think big in industrial
Industrial real estate saw exceptional liquidity in the first half of the year. The industrial sector is on pace for a new record year in terms of transaction volume, and is expected to surpass the previous highpoint of $67.8 billion that closed in 2015.
Investors acquired $30.5 billion of industrial assets in the first half. That momentum, coupled with $20 billion of large-scale transactions that are under-contract and set to close in the second half of the year, evidence the intensity of competition for industrial assets.
Multifamily deliveries set to hit cyclical peak
With $66.2 billion transacting through the first two quarters of 2018, the multifamily sector remains in high demand and accounts for 36.8 percent of all volume for the first half of the year. That sets multifamily on pace to remain the most liquid asset type for the fourth straight year.
Despite the 373,000 multifamily units delivering by the end of the year—marking the cyclical peak—rents continued to grow by 2.4 percent and vacancy held steady at 5.2 percent during the second quarter. Concessions will remain the norm in the majority of markets in the near-term, but deliveries are expected to decline by more than 17 percent in 2019.
Private investors continue to make the lion's share of trades in the multifamily space, accounting for 62.5 percent of total acquisitions. Meanwhile, foreign capital jumped 53.4 percent from a year ago, taking advantage of thinner buyer pools in primary markets as domestic buyers look farther afield for yield.
Strong economy, portfolio sales boost investment in hotel sector
The hotel sector continued its momentum with a strong first-half as transaction volume reached $15.1 billion, a 44.0 percent increase over the same period a year ago. Healthy demand fundamentals from corporate business travel, group and conventions business, and leisure travel paired with a strong U.S. economy created a recipe for revenue per available room to grow 3.6 percent.
Transaction volume was primarily driven by two factors: First, portfolio sales of both luxury and select service assets, which grew by a pronounced 220 percent, driven by two portfolios topping the billion-dollar mark. Next, single-asset sales in primary urban and resort locations, which accounted for $8.8 billion. Markets such as New York, Florida and Hawaii accounted for 68 percent of transactions.
Office investors remain selective
In the office sector, investors continued to remain selective, narrowing their definition of "core" and focusing on best-in-class assets. Highlighting this "flight to quality" is the uptick in the share of investment into primary markets driven by domestic buyers, which saw its first increase after three straight years of decline. The office sector in particular is seeing a resurgence of large, single assets coming to market which is expected to drive volumes in the second half of the year across the majority of primary markets.
JLL 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 2017 alone, the firm's 2,400 Capital Markets specialists completed $170 billion in investment sale and debt and equity transactions globally.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with nearly 300 corporate offices, operations in over 80 countries and a global workforce of 86,000 as of June 30, 2018. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.