Slowing Growth Leading Investors to Temper Risk

Commercial real estate investor attention is increasingly shifting to liquid and secure markets and asset types, reported JLL, Chicago. 

The proportion of transactions activity in primary markets increased in 2018, after three consecutive years of decline, JLL said, noting CRE buyers are shifting their focus to lower-risk markets and pursuing longer-term hold assets that can weather cyclical changes.

“Real estate transaction activity around the U.S. in 2019 is expected to moderate by 10 percent as investors continue to be selective and develop new strategies to deploy capital, against the backdrop of slower growth,” said JLL Americas Capital Markets President Jonathan Geanakos. “Fundamentals are still strong and there are pockets of growth, but that growth is not consistent across all sectors, and we’re starting to see some defensive positioning creep in.”

Full-year transaction totals last year reached nearly $483 billion, Geanakos said, up 16.4 percent over 2017 and the third-highest year on record behind 2015 and 2007.

“Led by a record year in the industrial, multifamily and retail sectors underpinned by entity-level trades, 2018 proved to be a year of immense liquidity,” the JLL Q4 2018 U.S. Investment Outlook said. “Looking forward, however, the factors that drove that liquidity may be difficult to repeat.”

Dry powder stands at a record high $187 billion. Value-add and opportunistic strategies accounted for nearly 70 percent of fundraising in 2018, but limitations to the amount of available investable stock in the value-add space will continue to challenge investors’ ability to efficiently deploy this capital, the report said.

“The multifamily sector is expected to see the most favorable year-over-year investment trends of the real estate asset classes in 2019, underpinned by solid wage growth and what continues to be an undersupplied housing market at the national level,” said Sean Coghlan, Senior Director of Americas Investor Research with JLL.