APARTMENT NEWS

ARCHIVES 2010:

JLL Sees Investment Sales Recovering This Year - 01/21/10

Commercial property investment sales in the United States are poised for a significant recovery from their horrid 2009 results, according to Jones Lang LaSalle.

The international services firm, in its annual report on global market conditions, predicted that U.S. transaction volumes this year will increase 30% to 50% and be led by the office sector, whose dollar volume of sales will spike as much as 70%.

Sales volumes last year dropped 66% to $45 billion, according to estimates from Real Capital Analytics, a New York research firm.

JLL further said that sales activity here could exceed $100 billion, depending on the extent to which lenders stop extending commercial property loans that are facing maturity and instead foreclose and put the underlying assets on the sales market.

Sales activity will rebound in advance of a recovery in commercial property fundamentals. Noting that "many corporations are accelerating their space rationalization and consolidation," JLL said that vacancies will continue to rise and rents will fall throughout 2010.

Continued declining fundamentals will drive first-half values down to 50% of the market highs reached in October 2008, but investment sales capitalization rates, according to JLL, will peak in the second quarter.

Limited supply versus a perceived future increase in demand, particularly for property in top tier coastal markets, "appear to be working in favor of quicker stabilization of cap rates and some limited compression," the firm said.

REITs will drive much of their buying thanks to their proven ability to raise funds, JLL said. Indeed, REITs last year raised $28.3 billion, including $17.2 billion of equity from 59 stock offerings.

Users of space may also emerge as buyers. JLL said that as corporations bolster their balance sheets in an economic recovery, they will look to drive down their occupancy costs "by acquiring distressed facilities at deep discounts." That would reverse what had been a pattern of businesses increasing their cash on hand by selling properties and then leasing them back.

On the debt-financing side, JLL expects life insurers to emerge as major lenders this year. It said that sector is comfortable with commercial property risk, citing a Barclays Capital study that found some of the country's largest life insurers should see little or no actual losses from their CMBS holdings.

Copyright © 2011 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.