JLL: Caution Dampens Real Estate Investment

JLL, Chicago, reported third quarter real estate investment fell nearly 25% year-over-year global to $234 billion.

The drop represented the first quarter of annual declines in real estate transactions globally since the COVID-19 pandemic began in 2020.

“Many investors remain cautious and are delaying decision-making,” said Sean Coghlan, Global Head of Capital Markets Research and Strategy with JLL, in Investor Caution Dampens Real Estate Investment. “In most markets across the globe, repricing of transactions is now common and a prolonged period of price discovery is impacting investment conditions.”

Coghlan noted bidding dynamics weakened across all real estate sectors during the quarter, which he called a sign of caution. “The average winning bid-ask spread declined, as well as the variability of bids on transactions,” he said. “This is having an impact on market efficiency and muting transaction markets. The outlook is now more uncertain.”

The report said some real estate sectors outperform others. Office sector momentum is faltering, with structural and cyclical challenges impacting leasing activity, while investment in retail and hotels rose 19% and 7%, respectively, year-over-year, the report said. Investment in multifamily housing, build-to-rent and student housing assets increased 9% year-to-date.

“Performance across sectors varies–much of the recent rebound reflects the pent-up growth from sectors that have been lagging,” Coghlan noted.

Investors are focusing more on portfolio strategy as market volatility increases, Coghlan said, while more opportunistic managers and investors anticipate dislocation will yield investment opportunities.

The report said global fundraising by closed-end real estate funds has fallen for four consecutive quarters. “Rising rates and uncertainty have triggered capital constraints for more market participants, who are increasingly patient and remain on the sidelines,” Coghlan noted.