CRE Activity Tops $63B in First Quarter

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SAN DIEGO-GlobeSt.com has learned exclusively that the first quarter of 2013 showed better-than-expected activity in terms of commercial real estate transactions nationwide. The industry had in excess of $63 billion in transactions during the quarter, which pushed the market to its highest mark in a first quarter since 2007, according to Jones Lang LaSalle's Capital Markets.

Marisha Clinton, director of capital markets research for JLL, tells GlobeSt.com that a variety of factors led to the surprise in transaction uptick. “First of all, we have to take a step back and look at what happened at the end of the year. Due to anticipated tax increases, there was eagerness on behalf of sellers to get deals closed, so a lot of volume activity that had been expected for January was pulled forward to the end of December. Because of this, the first quarter was supposed to experience some softness, which never materialized.”

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Despite entering 2013 with some uncertainty due to the debt ceiling and policy issues, investors' confidence increased, leading to greater investment activity over all property types, Clinton adds. Also, attractive debt and equity markets are fueling growth as well.

“We still expect a stronger back half of 2013, with the momentum continuing on,” Clinton says. She expects a continued theme of the real estate markets being slow and steady as both leasing and investment demand are beginning to broaden; employment drives growth in primary, secondary and tertiary markets; and the housing market recovers. In addition, “We're looking at the employment-driving sectors of technology and energy in Seattle and various parts of Texas.”

While all of the property sectors did well, the multifamily market continues to be the strongest category of real estate, according to JLL's report. The sector saw nearly $35 billion of transactions, a greater-than-180% increases over the same period last year—which was almost double the sales volume of office properties. Several large multifamily portfolio sales occurred in February, and shallow development in years past should keep the market tight with mid- to low vacancy rates across core markets.

The industrial sector saw a 29% increase in transaction volume over last year, recording $6.3 billion in first-quarter 2013. As e-commerce expands, institutional investors will seek out major shipping hubs and big-box space that have steady returns and low risk, according to JLL.

Meanwhile, the retail sector was down nearly 29% over last year, bringing in $8.2 billion in transactions, yet the pipeline remains robust with REITs continuing to dominate ownership of class-A malls and fortress centers. JLL predicts that private equity and institutional investors will continue to eye grocery-anchored strip centers in core markets and single-tenant properties.

Looking ahead, “We won't likely see the spikes the market witnessed as we exited the recession,” said Jay Koster, president of JLL Capital Markets Group, in a prepared statement. “However, we do expect transaction volume for the year to increase 15% to 20% over 2012.”

Urban Land Institute's “Emerging Trends in Real Estate” report concurs with Koster, stating, “The US property sectors and markets will register noticeably improved prospects compared with the previous year, and the advances gather some measure of momentum across virtually the entire country and in all property types.”

Koster cautioned that investors much “watch for errors and be aware of shifts and any economic or fiscal signals that may point to a change in course. Continued global uncertainty and any disruption in our own domestic recovery efforts could cause spreads to widen.”