Liquidity rising as headwinds gradually subside, but obstacles remain

Global Real Estate Perspective, August 2020

The full impact of the COVID-19 pandemic was felt further in the second quarter with direct investment in global commercial real estate markets declining 55% year-on-year to US$107 billion, leading to a 29% drop over the first half of 2020. The impact was evident across all three regions, led by a 72% decline in the Americas during the quarter as widespread lockdowns, mounting uncertainty and rising economic headwinds impacted investors’ short-term capital deployment plans.

Source: JLL, 2020

As investors pursue defensive strategies, sectors that have proved operationally critical have performed better, supporting resilient liquidity in the industrial and multifamily sectors as well as alternative assets.

Within the liquidity that remains in the market, the appetite for risk is diverging, with the core segment of the market set to be the biggest beneficiary, particularly assets with strong income, long lease terms and credit-worthy tenancies. On the other end of the risk-return spectrum, private equity investors are sitting on near-record levels of dry powder and will transact as market dislocations and distress emerge.

Although a bid-ask spread remains in the market, a broader recovery in the capital markets will accelerate price discovery and enable investors to better underwrite opportunities and understand the impact of the pandemic across different sectors and risk profiles.