Should Investors Break out the Champagne? JLL Global CRE Bid Intensity Index Reports More Bids, Narrower Spreads, and Rising Optimism
The average number of bids per deal rose 16% compared to a year earlier, according to data from JLL's latest global Bid Intensity Index.
Editor’s note: We missed yesterday’s issue due to a snowstorm here in the Pacific Northwest. This issue will contain links from 1/11 and 1/12. Happy reading!
There's a strong impetus from both private investor groups and institutional financiers driving this change; particularly within the US where deal prices have undergone significant adjustments already—ahead of European markets—with Asia-Pacific following close behind.
COMMERCIAL REAL ESTATE BIDDING HEATS UP
The commercial real estate market is heating up, as highlighted in JLL's latest global market pulse report. Picture this: as the last quarter of 2023 wrapped up, we saw a striking 16% increase in the average number of bids per deal compared to the previous year, per JLL's global Bid Intensity Index. This surge is reducing the frustrating bid-ask spreads that have been a thorn in the side of the commercial real estate market since interest rates started rising in 2022.
Here's the scoop: the traditional tug-of-war between sellers' expectations and buyers' offers is easing, signaling a more optimistic view of the commercial real estate investment scene as market fundamentals begin to strengthen.
📊Key Trends: Keep an eye on the U.S., leading the resurgence, but don't overlook Europe and Asia-Pacific, where investors are increasingly opening their wallets. Particularly, sectors with logistics opportunities and markets with strong rental growth potential are attracting smart money.
👀Looking forward: According to JLL's experts, this isn't just a temporary spike – we're seeing a real resurgence in investor confidence. This renewed enthusiasm is likely to stick around, with strategic real estate investments remaining solid or growing, despite the dampening effect of current high interest rates.
⬇️The Bottom Line: With bid intensity gaining momentum worldwide and spreads getting tighter, it might feel like we're heading into a boom period. While some caution remains, the marked increase in bidding activity is definitely something to celebrate. It's a sign of a revitalized commercial real estate market gearing up for action as 2023 closes – a positive sign for those ready to dive into this dynamic market.
Links of the Day
🧑🏫️Our Picks
Tax tangle in Gotham: 🏦 NYC commercial property owners grapple with a jarring 38.8% share of the city's property tax levy, despite representing just 21.3% of market value, as new valuations spark budgetary concerns.
Retail rarity: 🛍️ Despite historic lows in retail space availability, CBRE notes new development remains hampered by high construction costs.
Senior living scrutiny: 👵 The White House directs stricter ownership data sharing in nursing facilities, putting REITs and private equity firms under the microscope.
Market Highs: 😶🌫️ Cannabis legalization catalyzes a shift in commercial real estate dynamics, driving up rents and redefining investment hotspots.
Signature Loans on the Chopping Block: 🔪 Just after a high-profile asset win, Blackstone looks to trim its portfolio by shedding a chunk of Signature Bank's CRE loan cache.
🏭Industrial
Storage sector shakeup: 🚜 With an eye on the underserved IOS market, Steel Peak's founders plan aggressive acquisition of properties suitable for vehicles and construction materials storage.
Industrial optimism🏭 As interest rates stabilize, CRG's Susan Bergdoll forecasts a spike in industrial real estate activity for 2024, predicting heightened sales and construction across the Midwest.
Portfolio milestone: 🎯 With an assertive entry through a $300M portfolio acquisition, Atlas Properties is poised to amplify its market presence under the guidance of parent company Atlas Holdings.
👪 Multifamily
Banking on Stability: 🌆 JPMorgan Chase expresses confidence in their multi-family commercial properties, with CFO Jeremy Barnum dismissing concerns over potential market downturns.
Multifamily Lending Woes in Houston: 🏘️ With an unprecedented rate of criticized loans, Houston's property market faces scrutiny from lenders wary of overconstruction and slow absorption rates.
🏷 Retail
Billion-Dollar Blow to SF Mall Owners: 💢 Brookfield and Westfield face mounting pressures as their prized Union Square property suffers severe devaluation amidst market challenges.
Union Square Loan Woes: 🏢 Ashkenazy's $66M loan hiccup for a vacant SF building follows a string of defaults, underscoring real estate challenges in prime locations.
Colliers CEO's Retail Power Play: 🏬 Jay Hennick's family office clinches a $153M deal for an Upper East Side retail hub, betting on commercial real estate through a fully-leased site acquisition.
💼 Office
Office loan woes deepen: 🏢 Bank of America and Wells Fargo face surging write-offs as remote work trends and rate hikes hit US commercial property values hard.
Office REIT's record plunge: 📉 Office Properties Income Trust faces historic stock drop, nosediving over 38% amid dividend cuts due to commercial real estate downturn.
📊Daily Data Visualization
Consumer price inflation sat at 3.4% in December, slightly up from November but much more stable than in 2022. This steadiness suggests the Federal Reserve may cut interest rates up to five times this year, affecting commercial real estate borrowing costs and yields.
Core inflation, which excludes volatile items and is closely watched by the Fed, is at a three-year low of 3.9%, indicating a potential for more aggressive rate cuts if the trend continues, particularly in the rental market.
Lower mortgage rates from these cuts could improve housing affordability. One anomaly is vehicle insurance inflation, which may be driven by climate change effects, increased vehicle-related crimes, or a shortage of mechanics.
NAR’s Chief Economist Lawrence Yun had an excellent take on new inflation numbers on his LinkedIn, which you can read, here.
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