CRE Investment Up, But Caution Prevails

JLL, Chicago, said global real estate investment improved in the third quarter, but COVID-19 uncertainty continues to hamper markets.

Direct commercial real estate investment increased from $107.3 billion in the second quarter to $149 billion in the third quarter. But the third quarter figure is down 44 percent from a year ago, JLL reported.

JLL Global Head of Capital Markets Research Sean Coghlan said economic uncertainty, lockdowns and travel restrictions are stalling investors’ capital deployment plans, but he noted the market might have hit an inflection point. “As we approach the end of an uncertain year, transaction pipelines are rebuilding globally and are offering a sense of optimism,” he said. “Investors will remain cautious and calculated in their approach while opportunistic and high-net-worth investors are poised to capitalize on market fragmentation while institutions remain critical of pricing.”

Globally, CRE investment varied across regions. Investment volumes were down 19 percent and 24 percent year-over-year in the Asia-Pacific and Europe-Middle East-Africa regions, respectively. But CRE investment in the Americas was down 63 percent in part due to a lack of on-market deals.

“The road ahead is not straight,” said Coghlan. “Recent upticks in COVID-19 case numbers, the tapering of government stimulus and the psychological response to market conditions will continue to influence consumption patterns and economic performance. Markets’ abilities to mitigate economic scarring will be critical to the continued recovery of activity.”

As investors look for income stability and resilient supply-demand fundamentals, sectors that play important roles in “the new normal” are outperforming the market, JLL said. Beneficiaries thus far include logistics, multifamily and some alternative commercial real estate sectors such as data centers and life science assets.

“Widespread stay-at-home mandates have accelerated reliance on e-commerce and supply chains which have, in turn, bolstered demand in the logistics sector,” Coghlan said. “Despite higher unemployment and the tapering of government stimulus in some markets, the longer-term tailwinds for the multifamily sector remain intact and are supporting resilient investor interest in the U.S. and Europe, in particular.”