Direct commercial real estate investment declined 44% year-on-year to $149 billion in the third quarter of 2020 which could prove to be “an inflection point” in global real estate investment according to JLL.
The firm said that markets are improving from what was: “the sharpest decline in recent history.” The latest figure is an improvement on the 51% fall that occurred in the second quarter.
“Global activity remains considerably below pre-Covid levels as investors continued to react cautiously to the ongoing uncertainty caused by the Covid-19 pandemic and the disparity of recovery across markets,” the firm said in a statement.
Moreover, in Europe transactions exceeded expectations in the third quarter reaching US$60bn(€50 bn). Although this was down 24% year-on-year it was a 32% increase on the previous quarter.
Strong Q1 muted YTD decline to 17%
And a strong first quarter meant that the year-to-date decline in volume was muted to 17%. Rising allocations to the logistics and living sectors drove the recovery, JLL stated, the combined figure accounting for 39% of quarterly transactions.
JLL’s global head of capital markets research Sean Coghlan said: “As we approach the end of an uncertain year, transaction pipelines are rebuilding globally and are offering a sense of optimism.”
“Real estate investors will remain cautious and calculated in their approach while opportunistic and private/high-net-worth investors are poised to capitalise on market fragmentation while institutions remain critical of pricing,” he said.
Investors are being forced to “pivot” their strategies the firm said. Ongoing travel restrictions continued to hamper plans for cross-regional deployment, accounting for just 8% of global activity in the third quarter; the lowest level since the Global Financial Crisis.
European intra-regional investment highest in a decade
Domestic and intra-regional investment accounts for a greater proportion of volumes. Volumes of investment originating within the European region increased to 14%, the highest in more than a decade.
JLL said that “stay-at-home” restrictions during the pandemic have increased reliance on ecommerce and supply chains which has increased demand in the logistics sector. Global logistics investment increased 47% on the second quarter.
Investment into logistics accounts for up to a third of overall activity in each region. In Europe, the logistics sector saw volumes rise 19% year on year.