Reports Cite ‘Healthy’ Pace for CRE Investment, Led by Large Deals

While rising interest rates and the continued low-yield environment still weigh on investors, more high-quality opportunities and more very large deals kept capital flowing in first half 2018, JLL and Real Capital Analytics said.

JLL Americas Senior Director of Investor Research Sean Coghlan said commercial real estate volumes for the first half of 2018 rose 3.4 percent year-over-year to reach $194.9 billion. “As the cycle continues to press on, investors are displaying appetite for the commercial real estate sector,” he said. “Pockets of the market are seeing exceptional manifestations of liquidity with investors in pursuit of scale and market share.”

With the economic outlook and commercial real estate fundamentals remaining ‘favorable,’ JLL now expects volumes to be down just 5 percent year-over-year, Coghlan said.

Jim Costello, Senior Vice President with Real Capital Analytics, New York, said preliminary year-to-date figures through July suggest that deal volume is unchanged for single-asset sales compared with last year, but up “at a double-digit pace” for larger portfolio and entity-level transactions.

“Mega-deal activity continues to boost volume overall, but there are divisions by property sector,” Costello said. “Portfolio and entity-level deals are not a significant feature of the investment volume for the office and apartment markets. For industrial, hotel and especially retail, deal activity is dominated by double-digit growth in mega-deal volume.”

Costello predicted this pattern should hold into the third and fourth quarters of 2018 and said RCA is tracking nine separate mega-deals under contract. “September and December, especially, tend to be some of the strongest months for deal volume in the calendar and some of these mega-deals may close in those busy months,” he said. “If they do close in those months, unless there is also a drastic pickup in single-asset sales late in the game, 2018 volume will increasingly be dependent on these portfolio and entity-level deals.”

Domestically, buyers have increased their focus on primary markets, which experienced an investment increase after three straight years of declines.  JLL Americas President of Capital Markets Jonathan Geanakos noted foreign investors continue to see the U.S. as their preferred target. “Their commitment to the U.S. speaks volumes about the health of our real estate sector and economy, and we expect this to remain the case as the cycle progresses,” he said.