In the second quarter of this year, commercial real estate investments leveled off at $107.3 billion, but they took a sharp swing up to $149 billion in the third quarter. While that is an impressive climb, it becomes less inspiring when you take into account the fact that it’s still 44% lower than the 2019 third quarter figures. While responses to the coronavirus pandemic, which include travel restrictions and lockdowns, account for some of this loss, there’s still hope for a more significant rebound.
Sean Coghlan serves as the global head of Capital Markets Research, JLL and predicts a more promising fourth quarter. He says the market fragmentation that has resulted from the economic downturn is working in favor of investors, offering more lucrative opportunities for those with the courage to take the risks. The biggest challenges they may face are lenders who remain wary of rising prices in the market. Globally, investment volumes dropped by 19-24%, but that drop was more significant in North America where a 63% drop negatively impacted the market. Even though economies in the U.S. and throughout the world are starting to recover, various factors, including stimulus packages and new lockdowns, will affect how quickly the markets do rebound.
These changes that affect the economy also affect the opportunities available to commercial real estate investors. While inter-regional investing was up by 8% in the last quarter, it’s expected to slow as a result of ongoing travel restrictions. Alternatively, regional investment opportunities will become available with greater frequency even after enjoying a 14% rise in the same third quarter period. That recent rise was the greatest in the past 10 years, showing potential for future volume increases.
Lockdowns that seem to be going on indefinitely are costing many people their businesses, which means a lower demand for commercial real estate. Even after we adjust to a new normal and daily life adopts a more social aspect, there will be fewer people willing to risk their livelihoods on starting their own businesses. This means fewer opportunities for commercial real estate investors. As a result, investors will have to concentrate on a smaller selection of niches. In particular, multi-family housing, warehouses and logistics, and scientific research are a few of the industries that will still rely on commercial properties. New investors will have to be more selective in choosing the types of commercial real estate properties in which they will invest.