JLL: CRE Investment Activity Set to Rebound in 2017

Commercial real estate investment activity could rebound in 2017, reaching nearly $700 billion from $650 billion in 2016, reported JLL, Chicago.

Global investment volumes of $700 billion would represent a return to levels seen in 2014 and 2015, JLL noted.

The biggest factors supporting this trend: increased institutional allocations directed toward commercial real estate and new capital sources from China, Taiwan and Malaysia, JLL said.

“New capital targeting real estate is only part of the story; experienced real estate investors are also allocating more money to direct real estate opportunities,” said JLL Global Capital Markets Research Director David Green-Morgan. “As these groups tend to be well-versed in allocating capital, they are able to direct large sums of money into the sector relatively quickly.”

Green-Morgan said cross-border investment globally could account for more than 50 percent of all activity by 2020 as inter-regional flows grow.

“One of the most striking trends in commercial real estate is the rise of China as a major player in global real estate markets,” JLL said. “As of third quarter 2016, China overtook the U.S. as the world’s largest cross-border purchaser of commercial real estate assets.”

JLL said commercial real estate “reigns” as a global asset class. “The last two real estate cycles have seen an extraordinary rise in the amount of capital targeting the asset class across the world,” the report said. But it noted that real estate still lags behind the bond and stock markets in total U.S. dollars.

U.S markets remain strong, JLL said, noting the U.S. is home to 16 of the top 30 cities for real estate investment last year. New York remained the global leader for a second year in a row with more than $33.1 billion in transactional volumes during the first three quarters, nearly double second-place London’s activity.

Los Angeles moved into third position, ahead of both Tokyo and Paris, with a 22 percent increase over the first nine months of 2016 to $15.7 billion, largely due to an increase in foreign investment, JLL reported.

By contrast, San Francisco dropped out of the top 12 worldwide cities for investment as investment levels dropped 46 percent (Q1-Q3 2016) against 2015. Washington, D.C. and Chicago held their positions in the top 12 worldwide cities at sixth and eighth, respectively, despite modest volume drops in 2016.

JLL noted as increased demand places growing stress on core urban assets in cities such as New York, London and Paris, competitive pricing and lack of product in those cities has investors looking to “New World Cities,” or mid-sized cities supported by robust infrastructure, a favorable quality of life and transparent business practices, which combine to boost momentum and real estate market activity.

“In the U.S., New World Cities include metropolitan areas like Boston, Dallas and Seattle, while in Europe cross-border activity has boosted investment volumes in cities such as Stockholm, Brussels, Oslo, Vienna and Dublin,” the report said.

JLL Global Research Director Jeremy Kelly said despite more cities on investors’ radar screens, they continue to “overwhelmingly” focus on the more transparent and liquid cities in “mature” world economies. “There are huge opportunities for emerging cities to capture a greater proportion of capital directed at real estate but, to do so, they will need to significantly improve transparency in order for investors to continue to gravitate toward the established investment market,” he said.