Currently, substantial liquidity exists, with dry powder for commercial real estate (CRE) totalling $402 billion sitting on the sidelines. However, a clearer picture is already emerging as real estate has seen a growing number of bidders re-enter the market according to JLL’s proprietary Bid Intensity Index. This movement is being driven particularly by activity from private investors and select institutional capital with the U.S. being furthest along in its price adjustment cycle, followed by Europe and Asia Pacific.
JLL’s proprietary Bid Intensity Index shows improved market trends since year-end 2022, despite the late summer run up in bond yields. Bidding activity was on the rise in late 2023, with the average number of bids per deal increasing by 16%, narrowing the bid-ask spread.
“This reset in values will both challenge capital and catalyze liquidity,” said Richard Bloxam, CEO, Capital Markets at JLL. “There is absolutely uniform understanding that pricing has changed. Given the quantum of dry powder, there will be a considerable first-mover advantage for capital that can deploy quickly and mobilize around opportunities as market fundamentals improve.”
While the current nature of the markets remains fragile – as evidenced by the recent volatility in bond yields – the long-term attractiveness of CRE investments remains largely intact. From a 10-year return perspective, real estate has held up consistently well against other asset classes.
“In our view, while the current higher-rate environment has created a cooling effect on real estate’s attractiveness in the short-term, strategic allocation targets into real estate are expected to remain stable and, in some cases, trend higher, especially in the long run,” noted Bloxam. “We anticipate this will materialize initially in sectors, such as living and logistics, and in markets with strong rental growth expectations where values also appear to be bottoming out.”
As was the case for many trends, the…
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