According to JLL’s latest U.S. Investment Outlook, the effects of recent capital markets volatility on transactions is being felt in early 2016, and the sheer bumpiness of this volatility is further reflected in shifts throughout the quarter itself across global financial and real estate capital markets.
What started with elevated VIX levels, atypical downward S&P trending with crude oil pricing and a broad lack of consensus around Federal Reserve policy has since shifted into VIX index declines by less than half the quarter’s peak. Regardless of what some believe to be newfound, near-term stability, current pricing levels, cycle longevity concerns and a heightened sensitivity to risk have brought volatility into the real estate global capital markets, driving an 11.2 percent decline in first-quarter volumes with early cautionary sentiment expected to impact second-quarter volumes.
However, strong property fundamentals, a robust and historic level of active capital and alleviated investor angst is expected to drive flat moderate declines in activity a year-end. Despite volume declines, pricing dynamics broadly remain resilient, with spread levels healthy and cap rates compressing 31 basis points on average over the last 12 months across sectors. With the latter stages of the cycle, the risk of macro or sector pressures impacting markets naturally increases.
Top 7 key investment themes:
- After a bumpy January and February spur, heightened caution in markets, signs of stability emerge in late in Q1
- CMBS pricing follows the wave of market volatility with recent signs of needed stability
- Capital deployment pressures heighten with increased caution, decline in deal flow and continued discipline
- Slow start to 2016 in debt and equity markets parallels cautious investor sentiment
- Meeting the gap: REIT performance pressures benefitting dry powder in markets
- Cross-border down but far from diminished
- Fear factor remains, despite market rebound and lower volatility
This report provides snapshot views of investment activity by asset type.