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November 10, 2020

Global real estate investment had a better third quarter than second quarter, although the pace of investment was still much slower than last year as COVID-19 uncertainty continues to hamper markets.

Direct commercial real estate investment hit US$149 billion in the third quarter, up from US$107.3 billion in the second quarter, according to JLL data. However, the third quarter figure is down 44 percent from the same period last year.

Ongoing economic uncertainty, lockdowns and travel restrictions continue to stall investors’ short-term capital deployment plans, but the market could have hit its inflection point, says Sean Coghlan, Global Head of Capital Markets Research, JLL.

“As we approach the end of an uncertain year, transaction pipelines are rebuilding globally and are offering a sense of optimism,” he says.

“Investors will remain cautious and calculated in their approach while opportunistic and high-net-worth investors are poised to capitalize on market fragmentation while institutions remain critical of pricing.”

Investment looked differently across regions, mirroring the disparity of recoveries. Investment volumes in both Asia Pacific and EMEA were down 19 percent and 24 percent, respectively, year-on-year, according to JLL data. In the Americas, a lack of on-market deals in the second quarter trickled down to impact investment volumes, which were down 63 percent year-on-year.

Varying COVID-19 responses and levels of recovery are leading to the continued disparate pricing of real estate assets.

“The road ahead is not straight. Recent upticks in COVID-19 case numbers, the tapering of government stimulus and the psychological response to market conditions will continue to influence consumption patterns and economic performance. Markets’ abilities to mitigate economic scarring will be critical to the continued recovery of activity,” says Coghlan.

Pivoting strategies
Investors are being forced to rethink their strategies in a bid to mitigate the ongoing economic uncertainty caused by the pandemic.

Travel restrictions continue to hamper plans for cross-regional investment, which accounted for just 8 percent of global activity in the third quarter, the lowest level since the Global Financial Crisis.

Investors are looking closer to home with domestic and intra-regional investment accounting for a greater share of activity. The share of intra-regional activity climbed to 14 percent, the highest rate in more than a decade, according to JLL data.

As investors play a more defensive hand looking for stability in income and resilient supply-demand fundamentals, the sectors that are playing key roles in society’s adaption to the new normal continue to outperform the market. Key beneficiaries so far have been logistics, multifamily and some alternative sectors like data centers and life science assets.

“Widespread stay-at-home mandates have accelerated reliance on ecommerce and supply chains which have, in turn, bolstered demand in the logistics sector,” says Coghlan. “Despite higher unemployment and the tapering of government stimulus in some markets, the longer-term tailwinds for the multifamily sector remain intact and are supporting resilient investor interest in the U.S. and Europe, in particular.”

Global logistics investment increased 47 percent from the second quarter with investment into the sector now accounting for up to a third of overall activity in each region. In the multifamily sector, investment has declined by a moderate 27 percent year-to-date globally, after a strong 2019 with increased interest in core markets where tenants are less likely to experience hardship, and in submarkets with a lower amount of new supply.

Find out more about global commercial real estate investment in 3Q 2020.

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Sean Coghlan

Head of Global Capital Markets Research, JLL

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