JLL: Investors Signal Stamina, Discipline Amid Uncertainty

Commercial real estate investors are looking selectively at opportunities and shifting away from more conventional single-asset transactions, reported JLL, Chicago. 

“There is a pullback in core opportunities in the market right now,” said JLL Capital Markets Americas President Jonathan Geanakos. “Investors are being selective, looking at longer hold periods and seeking new strategies as a means to increase real estate assets under management and mitigate current market challenges.”

But Geanakos added that with all that said, fundamentals remain strong and foreign capital remains focused on U.S. real estate.

The JLL U.S. Investment Outlook reported $177 billion of transactions closed across the office, multifamily, industrial and retail sectors in the first half of 2017, down 13.6 percent year-over-year. But market sentiment is up year-over-year and transaction levels are expected to increase as 2017 becomes 2018.

Each sector is benefitting from a more targeted focus on value and risk.

The industrial sector stood above all others as the only one with year-over-year transaction volume gains, JLL said.

Up 20.7 percent at mid-year, the industrial sector has been “buoyed” by the re-emergence of large portfolios, JLL said. Through the first half of 2017, $3.5 billion of portfolios larger than $250 million have closed, with another $12.5 billion of comparably-sized deals set to close by the end of the year.

Foreign investors are “flipping the script” in U.S. real estate,” JLL said. Through first half 2017, nearly half of offshore acquisitions originated from Asian countries and seven of the top 10 foreign sources of capital are now Asian countries.

Despite overall offshore investment accounting for 11.4 percent of total transactions (down from 16.4 percent in 2016) and concerns about capital controls, China is on pace to have a “record” year, JLL said. As Asia’s leading player, China tallied $3.6 billion of transactions in the first half, well on its way to surpass its $4.9 billion peak from 2015.

Canada remains the largest source of offshore investment in the U.S. and continues to stay ahead of the curve on diversifying its holdings, the report said.

“Foreign investors continue to get more comfortable with U.S. real estate, and they’re diversifying the profile of assets they are willing to pursue,” Geanakos said. “This is especially true for Canadian firms, which have shown strong interest in multifamily and industrial assets.”