Capital Market Expansion Continues

Despite continued economic fluctuations, 2Q11 commercial real estate transaction volumes skyrocketed 157 percent year over year and 82 percent over 1Q11, according to Jones Lang LaSalle’s 2011 U.S. Mid-Year Capital Markets Outlook. The multifamily sector saw the largest transaction volume jump with $12.8 billion in activity — a 141 percent YOY increase and 63 percent quarterly increase.

“On balance, investment demand continues to exceed supply in the United States, pushing average yields down sharply in Q2 as solid demand for core properties in primary markets sparked increasingly competitive bidding,” said Jay Koster, president of JLL’s Capital Markets Americas. “In this competitive environment, that pursuit of higher yields will push investors outside of the global gateway markets and into cities such as Chicago, Dallas, Houston, and Atlanta.”

Despite significantly slower economic growth in 2Q11, anticipated industrial production in the latter half of the year along with improving corporate profits should lead to even greater investment levels, according to the report. The office and multifamily sectors continue to show the most momentum, with retail and industrial also showing increasing activity levels.

In the industrial sector, overall vacancy rates continue to decline and speculative development is occurring in major distribution markets such as California’s Inland Empire and central Pennsylvania. However, a major uptick in new construction is not expected in the short term, according to the report. 

Preliminary estimates for 2Q11 industrial transaction volume rose to just $4.6 billion, but portfolio sales velocity is on the rise. “We secured a great deal of interest from life insurance companies and pension funds — entities that have been searching for quality, large portfolios in which to place a great deal of capital,” said John E. Huguenard, CCIM, head of JLL’s  Industrial Capital Markets. “We’re also seeing a desire for properties with shorter lease terms. The sweet spot seems to be three to five years, allowing investors to capitalize on rising rents.”