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JLL Says Entity-Level Deals, Primary Markets Drive Q3 Volumes
Boosted by an economy now in its second-longest expansion on record, and with few signs of slowing in the near future, real estate fundamentals continue to become more divergent. That’s leading to uneven growth across sectors, despite strong volumes in the third quarter.
New research by Chicago-based JLL shows volumes through the first three quarters of the year increased 14.2% over last year, totaling $341.2 billion. JLL’s “Q3 U.S. Investment Quick Look” notes that activity was driven largely by primary market and entity-level transactions in the industrial and retail sectors.
JLL’s Sean Coghlan says, “Looking to end of the year and into 2019, we expect to see transaction volumes moderate. Volumes are likely to be up 10% over last year. However, we project a 3% reduction in 2019.”
Sector highlights
– The industrial sector continued its march toward a record year. Propelled by large-scale portfolio and entity transactions, such as Prologis’s $8.4 billion purchase of the DCT National Platform, volumes for the sector reached $54.7 billion year-to-date through the third quarter and are on pace to total between $70 and $80 billion, surpassing 2015.
– An influx of investors seeking to gain a foothold in the industrial sector has pushed primary market Class A valuations to an all-time high. Meanwhile, secondary market Class A assets continue to entice investors with, on average, a 50 to 100 basis point spread over comparable primary markets yields.
– Investors’ insatiable appetite for logistics and e-commerce related industrial product is keeping vacancy rates stabilized at a record-low 4.8%, even as new space delivers at a steady pace.
– As bankruptcies continue to be announced, retail fundamentals showing some signs of softening. Retail transactions increased by 36.1% year-over-year driven by entity-level portfolios, while single-asset trades are slower to close. Investors continue to focus on primary markets as they seek to mitigate risk.
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