The Real Deal New York

The global flight to quality

Investment volumes recover from Q1 lows, but not on track to match 2011 numbers: JLL

August 21, 2012 09:30AM

The global economic outlook has weakened, as doubts surrounding the Euro-zone debt crisis have re-emerged, said the Global Market Perspective report for the third quarter from Jones Lang LaSalle, released yesterday. Gross domestic product growth in 2012 is now projected to be 2 percent in the U.S., down from a predicted 2.2 percent growth in April.

Sales and leaseback activity have increased, as corporations look to free up capital, and capital markets have improved, but leasing in most developed countries has slowed, the report shows. Gross leasing volumes worldwide for 2012 are projected to be 10 percent lower than those of 2011. The global office vacancy rate is now 13.3 percent, down from 14 percent in the second quarter of 2011 — the lowest since the bottom of the post-Lehman market — and speculative development remains low in most developed markets, the report says.

The “virtual absence” of new office developments in the U.S. has suppressed the vacancy rate in the Americas, which fell to 17.3 percent from 17.4 percent quarter-over-quarter, the numbers show. Of major U.S. cities, Chicago had the highest vacancy rate, at about 20 percent.

Global rents have increased slightly both year-over-year and quarter-over-quarter, however, up 3 and 0.6 percent respectively.

Leasing activity has also rebounded slightly from the dire first quarter of the year; it was up 10 percent quarter-over-quarter but remains down 17 percent year-over-year, the report shows.

Deals are taking longer to close and the market remains stratified, as investors stick to trophy assets in global cities such as New York, London and Paris, the report says. However, as the “yield gap,” or spread between yields on investments in prime properties and those in less desirable assets, grows, JLL analysts expect more investors to look at secondary markets, especially in Europe.

But the investment sales picture remains relatively bright, the report said, despite volumes below 2011 levels. Investment volumes recovered to $108 billion in the second quarter of 2012, up 24 percent quarter-over-quarter, from $87 billion. At the height of the market, in the second quarter of 2007, investment sales volume was $205 billion, according to JLL’s figures.

The Americas saw a 33 percent increase in investment quarter-over-quarter, to $47 billion, and the U.S. alone saw a 20 percent increase in the same time period, to $38 billion. Still, the activity is down 9 percent from 2011′s stellar numbers, and is not projected to improve before the end of the year. The year-over-year growth in transactions was a negative 20 percent, the report said, and a “further slowdown in the rate of growth” is anticipated for the remaining quarters of 2012, according to the report. – Guelda Voien

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