CHICAGO—As reported yesterday, JLL has just finished its report Commercial Real Estate Investment: 2015 and Beyond, and the data contained a few surprises according to Sean Coghlan, the capital markets research lead for JLL.
"We did not anticipate that the industrial sector's recovery would be as strong or as quick as it was," he tells GlobeSt.com. By the end of the third quarter, for example, the year-to-date sales volume hit $43.2 billion, 53.9% higher than last year at this time, ensuring that the 2015 total will represent a sixth year of consecutive growth.
Perhaps even more significantly, a massive amount of foreign capital recently surged into the industrial market. The sector has attracted $11.5 billion in foreign capital so far, and Coghlan adds that JLL believes an additional $7.5 billion in deals have a good chance of closing by the end of the year. If that happens, industrial will outstrip the office sector in attracting inbound capital. This would be a sea change from past years, when the amounts brought in by industrial deals was only a fraction of what offices attracted.
And the data show that this trend will continue into 2016. The underlying strength in the industrial sector means that investors' appetites have not been satisfied. As many experts note, developers will not launch enough projects next year to meet the level of demand for space in the sector, spurring further rent growth. "We're seeing a very strong deal pipeline going into next year," Coghlan says, including more than $12.5 billion in the large-scale portfolio deals that have become quite popular.
"The multifamily sector has continued to surprise, largely by continuing to outperform expectations," Coghlan adds. The demographic changes sweeping the nation, with millennials migrating into many urban cores, while simultaneously putting off home-buying, has boosted demand for rental product, and does not seem to be ending any time soon. "There is a strong pipeline for new development but we have also seen a pervasive rent growth that has outperformed the other sectors," so investor sentiment remains cautious yet positive. Third-quarter sales volume was by far the strongest of any sector, bringing year-to-date volumes to nearly $96 billion.
The other big surprise of the year, according to Coghlan, was the $34.6 billion of opportunistic capital raised by the end of the third quarter. This was the largest infux since 2001, he says. And according to the JLL report, "the five largest opportunistic funds closed this year, led by Blackstone, Starwood Capital and The Carlyle Group, have raised on average 33.8% more capital than their most recently closed opportunistic funds." As reported yesterday in GlobeSt.com, in such a competitive environment, with so much capital ready to deploy, many investors have started to reexamine their strategies and are looking to find the niches where they are comfortable and which can generate the returns they need.
"We have an underlying confidence in the US market," concludes Coghlan. And that's a judgement shared by many. The total amount invested in US real estate reached $307.1 billion by the end of the third quarter, a boost of 30.1% over the same period in 2014. And the US market accounted for 51.8% of total global transactions. "That shows its level of activity, and in 2016 investors will continue to focus on the US because it really is the driver of the global market."
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
