Investors holding $540b of pent-up capital demand for commercial real estate
JLL Gobal’s global capital markets experts have totaled an estimated $540 billion in capital that LP investors are holding to place into commercial real estate investments across the globe.
Investors across the globe still view commercial real estate as an attractive investment given the stable cash flow and low interest rates compared with volatility inherent in alternative investments, but the property opportunities just aren’t as readily available today in the U.S. market.
Europe holds the largest amount of capital targeted to invest in the sector at $274 billion of capital demand, followed by Asia Pacific at $103.4 billion, the Americas at $63.1 billion and the Middle East at $39.6 billion.
“Supply fundamentals are generally in check, and thus core pricing remains elevated,” said Jonathan Geanakos, President, JLL’s Americas capital markets business. “This has pushed investors into riskier strategies and paralleled a continued increase in value-add fundraising. However, investors are being selective, disciplined and more conservative in underwriting. This is creating a competitive environment for deploying capital, spurring increased levels of less conventional deal structures and strategies in today’s marketplace.
“There is a wide gap between the current-to-target allocations of funds into commercial real estate, and many remain below their intended investment levels,” said Geanakos “The amount of pent-up demand in Europe and Asia should drive mid-term liquidity from those regional investors in the U.S. market and has the potential to positively impact asset pricing in the mid- to long-term.”
Gunnar Branson, the CEO of the National Association of Real Estate Investment Managers, added “There’s a disconnect between capital demand for assets and real estate supply. That presents an interesting set of challenges for institutional real estate investment managers and their investor clients. The market today is pushing everyone to think deeper and go beyond the obvious deal. Reasonable, risk-adjusted returns are there for those investors able to take a creative, intelligent approach.”
By the close of 2017, JLL forecasts global investment volumes will be in-line with 2016 volumes of $650 billion. In the Americas, activity levels are expected to see modest declines of approximately 10 percent. However, this decline in activity is contradictory to the continued appetite for U.S. commercial real estate assets in the current marketplace.