Global Real Estate Investment Slips

Global real estate markets remain liquid, but investors are growing more selective as caution builds regarding the real estate cycle, reported JLL, Chicago.

Markets were slightly subdued in early 2019; global commercial real estate investment dipped 8 percent year-over-year to $156 billion, the JLL Global Capital Flows report said. Major markets in the Americas and the Europe-Middle East-Africa drove the decline; the Asia-Pacific region saw investment volume set a first-quarter high.

Cross-border capital flows fell 17 percent in the first quarter to $44 billion, mainly due to a “significant” year-on-year drop in intra-regional transactions, the report said. “Inter-regional flows were also down in the first quarter, though they remain in line with the long-run average,” JLL said.

JLL predicted global investment in commercial real estate will decline by between 5 and 10 percent this year to $690 billion. Much of the decline will be driven by weaker activity in the Americas and the Europe-Middle East-Africa regions, particularly in the retail and office sectors, the report said. The Asia-Pacific region is likely to continue to outperform thanks to strong growth prospects across much of the area.

Slowing economic growth in the U.S. and other advanced economies as well as political uncertainty elsewhere in the world is weighing on markets. “The U.S. is driving global growth, but economic growth is expected to soften in 2019, and this will impact underwriting,” the report said. “Renewed caution regarding cycle longevity is manifesting itself given the brief inversion of the U.S. yield curve.”

Despite these concerns, the global commercial real estate market is likely to maintain “stable” performance, said JLL Global Capital Markets Senior Analyst Pranav Sethuraman. “Though property yields continue to be compressed, falling risk-free rates have helped to stabilize or in some cases widen spreads, keeping real estate investment an attractive option for investors,” he said.