By Jonathan Geanakos, President, Americas Capital Markets, JLL
Despite various sources of uncertainty and related bouts of financial market volatility weighing on the minds of investors over the course of 2016, commercial property proved to be a preferred destination for investment dollars in the third quarter in the Americas region. With record amounts of capital raised, driven by a search for higher-yielding investments in a low-yield world, and underpinned by solid performance in property market fundamentals, investment into Americas real estate increased in the third quarter.
Total office, retail, industrial and hotel volumes grew to US$77 billion during the period, an increase of one percent from the third quarter of 2015. This reversed the year-on-year declines in the first two quarters of 2016 as investors had been displaying somewhat elevated caution amid more turbulent financial markets. Total volume in the Americas has declined 10 percent, to $207 billion year-to-date. Although in the United States, overall volume increased one percent year-over-year to US$71 billion in the third quarter, and for the year-to-date period has decreased a little more than 10 percent, to $193 billion.
Trading volumes increased in U.S. office markets during the third quarter, as private equity and overseas investors remain very active in pursuit of office product. Primary markets including Los Angeles and Boston have experienced notable increases in volume year-to-date, as fundamentals strengthen and investors anticipate further income gains over the next few years. It should be noted, though, that increases in activity were not consistent across geographies – in fact, in select markets, such as Chicago and Houston, office volume thus far in 2016 has notably been lower than in 2015.
Mexico saw an increase in sales activity in the third quarter, while volumes in Canada, for combined office, retail, industrial and hotel transaction volume, were down approximately five percent, year-over-year, reaching approximately US$4 billion. Still, total transaction activity in Canada has increased six percent for the year-to-date period. The hotel market was particularly active, and we continued to see an uptick in foreign investors actively buying in the Canadian market, notable for the nation’s traditionally strong domestic REIT and pension fund ownership landscape. Meanwhile, in Mexico, total transaction volume had a relative surge to over US$1 billion during the third quarter, which was more than triple that seen in the same period one year earlier. Activity was fairly diversified by sector. Year-to-date, volume in Mexico is up by approximately one-third. Investment volumes in Brazil continued to be historically light during the third quarter, as they have been for all of 2016 to date.
Given the significant weight of capital awaiting investment in real estate, the generally increasing institutional and private equity allocations to the asset class, as well as sturdy underlying property market fundamentals in most markets, the Americas is poised to continue to attract strong investment flows in 2017.