Investors make more defensive plays while optimism remains

May 17, 2019

CHICAGO, May 17, 2019 — 2019 started as many expected; with a somewhat slowed pace of transactions and investors wary of market volatility. According to JLL’s Q1 U.S. Investment Outlook, transaction volumes decreased 2 percent from the prior quarter to $98 billion, with every asset class showing declines aside from multifamily. However, there remains optimism within the commercial real estate investment community as property fundamentals and the economy have remained resilient.

“Despite some market headwinds, there continue to be investors looking to deploy capital across the United States, especially in assets such as multifamily and industrial, which are acting as engines of growth,” said Jonathan Geanakos, JLL President of Capital Markets, Americas. “However, as investors search for yield in the highest quality assets in primary and top-tier secondary markets, supply of assets on the market will continue to challenge activity in the capital markets. Against that backdrop, we expect to see a 10 percent decline in U.S. transaction volumes this year.”

Multifamily continues to be a bright spot

The multifamily sector continued to outperform, as absorption has kept pace with the delivery of nearly 300,000 units over the past year. Vacancy hit a new national low of 4.6 percent in the first quarter and rents grew 4.5 percent year-over-year. Renter demand fueled investment as $38.3 billion of multifamily assets traded in the first quarter, a 13 percent year-over-year gain on Q1 of last year and the sector’s most active first quarter on record.

Private investors accounted for 72.2 percent of total multifamily volumes in the first quarter, the highest mark for that group on record, while the volume of foreign investment ticked up 23.8 percent year-over-year.

Office activity moderates

After a particularly liquid first quarter in 2018 driven by several high-profile transactions, the office market normalized in the first quarter of 2019 with $27 billion in transaction activity, a 4.1 percent decline from a year prior. In a continuation of the trend that emerged in 2018, investors are evidencing a preference for liquid and secure markets, and high-quality assets. This behavior has been most notable in the office sector, where a further increased proportion of transaction activity is happening in primary markets.

“While investor appetite for value-add office product in core markets is strong, this type of asset is difficult to come by in the current market,” said Sean Coghlan, Senior Director of JLL Investor Research. “With pressure to place capital and limited product within the desired risk profile, appetite is shifting to more secure markets and higher-quality assets that are pricing close to core or core-plus.”

Looking forward, heightened selectivity among both international and domestic investors is expected to remain the norm.

Industrial investors look to smaller portfolio sizes

After seeing a surge in transactions above the $500 million mark in 2018 (34 percent in total industrial transactions), industrial investors are expected to look for smaller acquisition targets in the form of single assets and small-scale portfolios. While 2018 saw a record-breaking year, investors caught their breath in Q1 2019, turning in $15.9 billion of transaction activity in Q1, an 11.9 percent decline from the same period in 2018.

However, investors are still looking to gain exposure to the industrial sector as the decline in 10-year treasury yields continues to outpace the sector’s cap rate compression and e-commerce companies commit to faster delivery.

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About JLL

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 annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 90,000 as of December 31, 2018. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit