JLL: Investment Tactics Evolve

Investors are starting to adopt later-cycle investment strategies as the market continues to expand, said JLL, Chicago.

But few markets face development-driven supply issues and rents remain well positioned for strengthening across sectors in 2016, JLL’s Third Quarter Investment Outlook said.

Pricing grew 7.7 percent across sectors over the first three quarters of 2015, JLL said. “As a result, select groups are evolving investment tactics from a recent focus on portfolio transactions to larger entity-level transactions, notably in the real estate investment trust sector,” the report said. JLL said the interest rate environment remains a key factor, especially with recent economic volatility and mixed indicators globally. “However, with income appreciation strong and markets pricing interest rate risk into underwriting, the U.S. property market remains well positioned to absorb controlled, modest rate increases,” the report said.

A look at recent investment highlights by sector:
–Though the hotel sector is not immune to global economic volatility, solid fundamentals give it a positive outlook, JLL said. The sector saw a 15.5 percent increase in the average price per key over the past 12 months.  

–The third quarter pushed industrial sector trading volume over full-year 2014 figures, JLL said, leading to a sixth consecutive year of growth for the sector.

–Multifamily saw its strongest quarter of the cycle. “Some will credit recent dynamics to structural, longer-term demographic and homeownership shifts in the U.S., while others interpret it as leading indicators of a peaking sector,” the report said.

JLL noted that some markets show softening due to the ongoing apartment supply expansion. “However, relative to the prior cycle, urbanization, demographics and expanding institutional exposure are expected to mitigate historic cyclical volatility,” the report said.

Investor appetite for urban retail product remains strong, JLL said. Retail centers in primary markets command a 200 basis point premium over secondary markets.

Office investors show more interest in diversifying deeper into and across markets, as shown by a 53 percent increase in Class B office investments year-over-year, JLL said.

And the number of net-lease investors continues to expand, JLL reported. Cap rates for single-tenant net-lease office, industrial and retail properties all compressed to near-record levels in recent quarters. The net-lease sector saw an 8 percent increase in sale-leaseback transactions compared to a year ago with more than one-third of that credited to portfolios, JLL said.