Real estate investors are taking a more cautious approach globally following the spread of the pandemic. Almost without exception, commercial real estate investments fell worldwide during the first quarter of the year.
Global real estate firm JLL which tracks data says that direct investment in commercial real estate dropped by 5 percentage points year-on-year to US$200 billion.
“Credit and equity markets were among the first to react, with REITs the first in our industry to experience the negative impacts of COVID-19,” said Sean Coghlan, Head of Global Capital Markets Research.
The firm said that total returns fell 31 percent on average in eight of the world’s top REIT markets.
Evidence shows that global economic growth contracted for the first time in 11 years during the first quarter of 2020, following the spread of the virus across the globe.
However, the fall in investment activity varied across regions and the first quarter data does not fully reflect the effects in countries whose cases grew through March.
The crisis has thrown lenders into a period of significant uncertainty following the market volatilities, central bank interventions, and unprecedented policies holding sway.
“Despite ample liquidity in debt markets, lenders remain in a phase of ‘price discovery’ and are focused on asset managing their existing portfolios. This has led to greater scrutiny over-leverage, and a focus on experienced sponsors, resilient sectors and strong locations in quoting new deals,” said Sean Coghlan.
Investors have responded defensively, narrowing on sectors that have been least affected by the pandemic with multifamily, industrial and data centre assets poised to be the favourites for investors based on income stability, occupation density and operation criticality.
According to JLL, investment in the global industrial market rose by 7 percent in the first quarter as investors anticipate an explosion in e-commerce, accelerated by the effects of the pandemic. The multifamily sector kept its place with investments falling just 1 percent below last year’s levels during the same quarter.
“With the near-record volume of dry powder held by investors, global commercial real estate is still poised to see healthy investment over the long term,” says the firm.