Bidders Returning To CRE, Sparking Hope For Valuation Clarity, JLL Says

Bidding activity in commercial real estate worldwide rose in late 2023, with the average number of bids per deal increasing by 16% compared with a year earlier, as measured by JLL's global Bid Intensity Index.

The upshot will be a narrowing of the bid-ask spread, the uncertainty of which has vexed CRE since the rise of interest rates began in 2022.

This movement is being driven largely by private investors and institutional capital, with U.S.-based deals furthest along in the price adjustment cycle, followed by Europe and the Asia-Pacific region, JLL reported.

There is a lot of capital waiting in the wings for CRE deals — some $402B in dry powder, JLL said. The narrowing of bid-ask spreads has the potential to unleash much of that, with an advantage going to investors that deploy their capital quickly as market fundamentals improve, JLL CEO of Capital Markets Richard Bloxam said in a statement.

"While the current higher-rate environment has created a cooling effect on real estate's attractiveness in the short-term, strategic allocation targets into real estate are expected to remain stable and, in some cases, trend higher, especially in the long run," Bloxam said.

The shifts will begin in sectors like logistics and in markets with strong rental growth expectations where values have likely hit bottom, Bloxam said.

JLL said that portfolio diversification among investors, while accelerated by the pandemic, had been underway before 2020. Investment in industrial and residential assets among the largest funds has grown by $138B, a ballooning of 263%, since 2016.

Those sectors together now account for 62% of U.S. core fund exposure, 52% in Asia-Pacific and 46% in Europe, JLL reported.