NATIONAL REPORT—The third quarter of 2018 was marked by strong liquidity and increased interest in primary markets, according to JLL’s commercial real estate investment trends & outlook report.
An increase in opportunities across primary markets and entity level transactions drove U.S. real estate transaction volumes to increase by 14.2% in the first three quarters of 2018 to reach $341.2 billion—exceeding expectations and positioning the market for growth in the full year. The U.S. economy is in the second-longest growth cycle on record, and economic activity accelerated in 2018, but markets are moving toward a period of moderated growth.
The following themes are expected to shape investor behavior in the months ahead:
- Pockets of the market are seeing exceptional manifestations of liquidity with investors in pursuit of scale and market share.
- Secular factors and disrupters will continue to support pockets of outperformance, from the industrial sector to office and retail.
- The first three quarters of 2018 have seen the highest amount of entity level transactions since 2007, driven by large-scale portfolios in the retail and industrial sectors.
- Following three consecutive years of declines, the share of transaction volumes in primary markets has been rising again in 2018.
- The composition of cross-border buyers has shifted notably, with buyers from Canada representing a one-third higher share of overall foreign purchase volume in the first three quarters of 2018.
- As the 10-year treasury rate remains volatile and trends higher, markets are expected to witness tightening spreads, which will make acquisitions more expensive.
- Dry powder is at an all-time high and fundraising continues to favor higher-yielding strategies.
- Debt availability remains strong as debt funds continue to drive competition, forcing traditional lenders to provide higher leverage at lower profit margins.