Pace of global real estate investment recovery picking up: JLL | BUSINESS
Global real estate investment volume declined 28% year over year after capital market activity hit record levels in 2019, according to JLL’s recently released Global Real Estate Perspective report.
The transaction volume for the full year was $ 762 billion in 2020. Investment in the EMEA region was $ 282 billion, down 17% year over year.
Global investment was supported by strong performance in Q4 2020 of $ 267 billion, up 65% from Q3 2020.
Global investing activity in the fourth quarter continued the trend of slowing quarterly declines by -21% year-on-year in the fourth quarter of 2020 for all of 2020, compared to -41% in the third quarter of 2020 and -50% in the second quarter of 2020.
Established markets with branch diversity, transparency and scalability drove the recovery in the fourth quarter. France, Germany and the US totaled $ 150 billion in the last quarter, an 81% increase over Q3 2020.
Gateway markets in Europe and Asia Pacific grew during the quarter as investor demand for centrally located assets with larger tickets – especially core offices – improved.
Sean Coghlan, JLL’s Global Director, Capital Markets Research & Strategy, said, “As 2020 progresses and the pandemic matures in the markets, investors have learned to better manage uncertainty. This confidence was reflected in a higher capital investment in the second half of the year. ”
According to JLL, the improvement in activity was most evident in selected market segments.
Capital aimed at income and operational stability: The logistics and multi-family sector continues to show strength around the world, with rental collections maintaining a stable and secular tailwind. This dynamic leads to more stable pricing, with the transaction bids won are close to expectations. The office space saw a modest recovery in investor sentiment in the fourth quarter, with activity in the global gateway markets picking up. Private capital took the opportunity to acquire high-quality office products. That represents an all-time high of 29% of acquisitions valued at over $ 100 million since the pandemic began. Institutional investors are returning to the market but remain cautious.
Core product with enhanced liquidity: The desirable long-term core product made up the majority of the transactions completed in 2020. Relatively minor price adjustments have been made to prime, high quality assets since COVID. The prices for core logistics products continue to hit highs, and high-quality core products for apartment buildings and office products have also seen relatively modest single-digit price adjustments since the outbreak of the pandemic. Opportunistic capital remains active and convinced of higher risk opportunities. We assume that, as prices continue to be determined, this will lead to volume growth in this market segment and provide hotels and retailers with the necessary liquidity.
The debt market benefits from a favorable interest rate environment: The appetite for debt risk favors sectors and markets that benefit from secular and cyclical shifts. The depth of the pool of lenders continues to grow and the loan-to-value ratios are favorable in the logistics and multi-family sectors. The lender’s appetite varies by country and region. In the US, markets with lower cost of living, corporate relocations, and expanding industries are experiencing spread compression. Conversely, the credit markets in Europe prefer the most important markets – such as London, Paris and Berlin.
Bid-ask gaps in the markets remain, with different price effects and spreads. Sectors with greater income insecurity – especially retail and hotel services – have seen major price adjustments. The inequality between risk profiles is also evident in the impact of overall pricing, which is most significant in value-adding and opportunistic market segments.
Coghlan added, “Despite the divergence in many parts of the market, optimism continues to improve after liquidity is restored and the low cost of debt helps compress the cap rate in sectors with growth and favorable demand outlook. We assume that this will be reflected in an expansion of the recovery in the capital markets in 2021. ”
According to JLL’s interactions with investors, optimism continues to improve due to the lower liquidity and measured against the increased bidding activity worldwide. Signs of improvement in capital markets, however, could be hampered by the ongoing wave of lockdowns and deteriorating economic conditions.
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