Global CRE Investment Feels COVID-19 Impact But Domestic Capital Proves Resilient

Amidst the COVID-19 pandemic, commercial real estate investments fell in the first half of the year, according to a new report from JLL, even as some investments moved forward. The company also stated that domestic capital has proved to be the most resilient.

Global CRE investments fell 29% compared to the first half of 2019, according to the article. Lockdowns and cross-border travel restrictions were some of the biggest obstacles that contributed to the market decline, which JLL says stalled investors’ short-term capital deployment plans.

“Inter-regional investment … declined by 61 percent during the second quarter,” Sean Coghlan, head of research, capital markets at JLL said. “Those markets that are more reliant on foreign capital are feeling the effects, resulting in steeper activity declines.”

The decline in investment volumes varied by region. The Americas saw the biggest decline with 37%. Asia Pacific saw a 32% decline, and EMEA saw only a 13% fall. “A relative outperformance due to pre-COVID deal that carried into the first half,” the JLL article states.

Capital deployments to funds were another aspect that fell in the first half of 2020. But markets that rely heavily on domestic capital have proved to be the most resilient due to the fact that there are simply fewer travel restrictions impeding the process.

“As institutional investors took a step back to assess risk, pockets of capital have been emerging, with private local investors and high-net-worth family offices from the Middle East, Hong Kong, Singapore and the U.S. emerging as new sources of liquidity,” Coghlan said.

In global terms, Japan, Germany and South Korea all outperformed other markets in the first half of the year, according to JLL data. Japan had a 7% increase in investment year-on-year. Coghlan adds that these countries have led the way in market correction and there are early signs that France and the U.S. are heading that direction, as well.

REIT investors also suffered in the first half of the year, but markets have recovered some of those losses since March. They still remain in negative territory, though.

Although many parts of CRE are seeing declines, some sectors have benefitted during the pandemic. Sectors such as industrial, multifamily and some alternative sectors such as data centers have proved to be in a decent spot.

JLL reports that a focus on supply chains and e-commerce growth during lockdowns has caused more interest in the logistics sector of the industry globally. JLL data shows the sector only dropped 13% in the first half of the year.

Moving forward through the second half the year, JLL says they expect to see these trends continue as the year concludes.

“All eyes are firmly on the rest of 2020,” Coughlan said.