Liquidity beginning to recover as investors adapt to the ‘new normal'

Global Real Estate Perspective, November 2020

Early indications point to the third quarter as an inflection point in the real estate capital markets. Following the quickest drop-off in transaction volumes in recent history, direct transaction volume declines decelerated during the quarter, down 44% from Q3 2019. Markets of scale with access to capital in Asia Pacific and Western Europe are leading the recovery, led by resilient transaction activity in China, South Korea and Germany. Although the U.S. is lagging in its recovery, it remains the most active market globally with high investor interest.

Source: JLL, 2020

Global investors remain a key source of liquidity representing 8% of total investment this year. However, shifting inter- and intra-regional dynamics are evident with domestic and intra-regional investments accounting for a greater share of volumes.

Fund closings are on pace for the lowest fundraising totals since the period immediately following the Global Financial Crisis. However, the appetite for the real estate asset class remains strong, supported by record low interest rates and stable debt markets for high-quality assets.

A heightened focus remains on operationally-critical, defensive sectors, and the logistics and living sectors are benefitting from a disproportionate share of capital and experiencing moderated declines in activity compared to the market-at-large.

Transaction pipelines are rebuilding globally and are offering a sense of optimism for the quarters ahead. Investors remain cautious with many preferring defensive, income-oriented assets. Opportunistic and high-net-worth investors are poised to capitalize on market fragmentation while institutions remain critical of pricing. Markets are firmly in price discovery, and value transparency is expected to rise as activity steadily increases.