Institutional Real Estate, Inc.

NAREIM Dialogues Spring 2018

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Page 45 of 51

NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS 44 This helped to propel office rental growth to over 4 percent for the full year, above earlier forecasts and the strongest increase since 2011. At the same time, absorption levels in the logistics sector were at record levels, while vacancy fell to historic lows. Investors remain confident in the real estate sector, with transaction volumes in the final quarter of 2017 surpassing the previous quarterly peak in 2014. The synchronized global economic upswing provides a strong platform for 2018, although it will be difficult to match the robust levels of last year and investment volumes are likely to soften slightly due to a lack of product and continued investor discipline. Fourth quarter bounce lifts global investment volumes Global real estate transaction volumes for the fourth quarter of 2017 came in at US$228 billion, 10 percent higher relative to the same period last year. This brings full-year volumes for 2017 to US$698 billion, 6 percent above last year's total. While political uncertainty still looms, investors remained confident in the performance of the real estate sector, reflected in Q4 2017 global investment volumes surpassing the previous quarterly peak set in 2014. Despite being in an extended cycle, the weight of capital seeking to enter the sector is still significant. Although global markets continue to be liquid, the relative lack of product combined with continued discipline are likely to limit investment growth in 2018 and we expect global investment volumes to soften by 5-10 percent to around US$650 billion. Nevertheless, investors are still keen to access the sector and are now looking to new strategies such as debt financing, M&A and alternative sectors as the search for yield continues. Global office leasing volumes at highest levels for a decade The global office leasing markets finished the year on a high note, with 11 million square meters leased in the final quarter of 2017 across 96 markets, the strongest quarterly volume since 2007. For the full-year 2017, gross leasing volumes were a healthy 4 percent higher than 2016 and at the top end of our forecast range. Europe was the outstanding leasing market performer with activity up an impressive 10 percent, while volumes in the U.S. were up by 3 percent on 2016 levels with new supply providing greater choice for tenants. 2018 is set to be another good year and we have revised our global volume projections upwards to close to 430.5M square feet. Yet due to the exceptional 2017 result, this translates into a modest 3 percent decline year-on-year, with volumes unlikely to hit last year's impressive tally. Global office vacancy rate falls, defying expectations Office leasing markets ended the year a lot tighter than predicted, with the global office vacancy rate defying expectations by falling marginally to 11.9 percent in Q4 2017, testimony to the capacity of the market to absorb additional space. Most of the vacancy rate decline was due to the continued falls in Europe, where vacancy dropped further to 7.4 percent in Q4. Vacancy rates remained broadly flat in the Americas (at 14.9 percent) and Asia Pacific (at 11.1 percent). Nonetheless, with the delivery of new offices expected at a relatively elevated level during 2018, vacancy is projected to edge up in 2018 to around 12.2 percent. Real Estate Markets Enter 2018 on a High Note Synchronized growth provides strong platform for 2018 Global real estate markets ended 2017 in impressive fashion, with 2018 projected to be another solid year barring major financial, economic or political shocks. Office leasing volumes in the final quarter of 2017 were at their highest level in a decade, while the global vacancy rate defied expectations and continued to fall, despite being near the peak of the development cycle. 2018 REVIEW G Blake Lacher, Managing Director, JLL

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