CRE Transaction Volume Up 14% through 3Q

Commercial real estate transaction volumes through the first three quarters increased 14.2 percent over last year to $341.2 billion, reported JLL, Chicago.

JLL Americas Senior Director of Investor Research Sean Coghlan said the increase was driven mostly by primary market and entity-level transactions in the industrial and retail sectors.

“Looking to end of the year and into 2019, we expect to see transaction volumes moderate,” Coghlan said. “Volumes are likely to be up 10 percent over last year. However, we project a three percent reduction in 2019.”

Last week the Mortgage Bankers Association noted a “pullback” in lending activity across most property types that led to a decline in total mortgage loan originations during the third quarter. MBA Vice President of Commercial Real Estate Research Jamie Woodwell said rising interest rates took some wind out of the market’s sails, especially the commercial mortgage-backed-securities and bank lending markets. Lending backed by multifamily properties and for the government-sponsored enterprises continued to grow.

JLL Americas Capital Markets President Jonathan Geanakos noted a strong dollar and rising interest rates are combining to influence cross-border commercial real estate investment because currency hedging remains a significant driver of global investment strategies. “Foreign investors are also looking to enter new markets with a continued focus on the multifamily, industrial and alternative sectors to bolster their portfolios,” he said.

Canadian investors continued to increase their dominance of cross-border U.S. commercial real estate investment, JLL said. Canadian investment accounted for a one-third higher share of cross-border investment as currency hedging costs affected German and some Asian investors in the first three quarters.

The larger transactions boosted the office sector especially, JLL said. Though fewer office transactions have closed year to date, the deals that have closed are generally larger than last year. That focus on big deals pushed the sector’s 2.9 percent volume growth compared with the same time last year to $93.1 billion through September.

Those trades are more frequently happening in primary markets’ central business districts, JLL said. Primary market office investment fell for the previous three years but is now trending upward, resulting in a 3.5 percent year-over-year boost. Meanwhile, secondary market office investment decreased 8.4 percent over the same period. “The shift comes as investors begin to focus on more defensive investment strategies, favoring longer-term proven markets and best-in-class assets,” the report said.