Research

Commercial real estate investment trends & outlook

Third quarter of 2018 marked by strong liquidity and increased interest in primary markets

An increase in opportunities across primary markets and entity-level transactions drove U.S. real estate transaction volumes to increase by 14.2 percent in the first three quarters of 2018 to reach $341.2 billion — exceeding expectations and positioning the market for growth in the full year. The U.S. economy is in the second-longest growth cycle on record, and economic activity accelerated in 2018, but markets are moving toward a period of moderated growth.

The following themes are expected to shape investor behavior in the months ahead:

  • Pockets of the market are seeing exceptional manifestations of liquidity with investors in pursuit of scale and market share.
  • Secular factors and disrupters will continue to support pockets of outperformance, from the industrial sector to office and retail.
  • The first three quarters of 2018 have seen the highest amount of entity-level transactions since 2007, driven by large-scale portfolios in the retail and industrial sectors. 
  • Following three consecutive years of declines, the share of transaction volumes in primary markets has been rising again in 2018.
  • The composition of cross-border buyers has shifted notably, with buyers from Canada representing a one-third higher share of overall foreign purchase volume in the first three quarters of 2018.
  • As the 10-year treasury rate remains volatile and trends higher, markets are expected to witness tightening spreads which will make acquisitions more expensive. 
  • Dry powder is at an all-time high and fundraising continues to favor higher-yielding strategies. 

Key themes

Transactions

Following three consecutive years of declines, the share of transaction volumes in primary markets has been rising again in 2018.

Global capital

The composition of cross-border buyers has shifted notably, with buyers from Canada representing a one-third higher share of overall foreign purchase volume in the first three quarters of 2018.

Debt

Debt availability remains strong as debt funds continue to drive competition, forcing traditional lenders to provide higher leverage at lower profit margins.

 
Sector snapshots

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