Investor demand for commercial real estate surged this summer, driven by increased liquidity in the credit markets.
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Competitiveness in investment sales transactions reached its highest point in more than a year, while competition from the credit markets is higher than JLL has ever recorded, according to quarterly bidding and credit indexes the company released this week. For July CRE transactions, JLL recorded the second-highest number of unique bidders in the last five years.
“Liquidity is back — and building,” JLL CEO of Capital Markets Richard Bloxam said in a statement. “The exceptional strength we have seen in credit markets over the past year is now directly propelling transaction activity.”
Lender confidence has spread into the equity market with buyers stepping up with clear intent on larger deals, Bloxam said.
That momentum was recorded in JLL’s Global Bid Intensity Index and Global Credit Intensity Index. The former measures bidder activity on investment sales transactions and the difference between winning bids and asking prices. The latter tracks the number of lenders quoting on loans and the average winning loan-to-value ratio.
Combined, the indexes offer what JLL called a comprehensive liquidity monitoring system that can provide signal changes ahead of the rest of the market.
The Global Credit Intensity Index includes quotes for data center financing, but those don’t represent a disproportionate share of what is driving the index, according to Lauro Ferroni, JLL’s head of capital markets research for the Americas.
When the two indexes are above 100, as they are now, Ferroni said capital markets are more active and competitive than normal. That means winning bids are more likely to surpass the ask price because more buyers are actively bidding on transactions.
“If the indices are increasing, it signifies bidding and credit intensity is building — with momentum in transaction volumes likely to climb in the months ahead,” Ferroni told Bisnow.
Though average winning loan-to-value ratios have leveled off since April, the Global Credit Intensity Index is well above its previous January 2021 record high. That signals that lenders are competing harder than buyers, though the difference between bid and credit intensity has cooled off since its peak in May.
Despite the expansion of capital depth and the increase in active bidders, JLL said the recent rise in bond yields is widening the gap between what buyers are willing to pay and what sellers are seeking. Going forward, the company expects investors to focus on whether strong capital availability can offset continued borrowing cost pressures, particularly in sectors such as multifamily housing.
For the second half of the year, JLL anticipates a more normalized transaction environment as the gap between credit intensity and asset bidding continues to tighten.
“We expect that the strong capital depth will outweigh the impacts of macro variability and pressure on bond yields,” Ferroni said.