United States investment outlook - H1 2018

First half of 2018 outperforms but overall selectivity prevails

Elevated new supply, rising interest rates, and the continued low-yield environment are weighing on investors. Yet an uptick in opportunities drove U.S. real estate transaction volumes to exceed expectations in the first half of 2018, increasing by 3.4 percent, to reach $194.9 billion

Commercial real estate demand fundamentals are healthy and the U.S. economic outlook continues to be favorable. 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.
  • Driven by domestic buyers, the share of transaction volumes in primary markets ticked up in the first half of 2018, following three consecutive years of declines.
  • Investors' definition of core assets continues to narrow, with a heightened focus on best-in-class assets. This is impacting liquidity and pricing for core transactions.
  • 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.
  • The financing markets for U.S. commercial real estate remain competitive, with banks, life companies, debt funds and CMBS lenders active. Lenders are underwriting increasingly aggressively on the most sought-after opportunities.
  • The U.S. remains a leading recipient of cross-border capital with the share of non-domestic investment holding steady on last year.
  • Canadian and European investors are driving the bulk of cross-border acquisitions at a time when interest rates and currency fluctuations are resulting in higher hedging costs for select Asian outbound investors.

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