Commercial real estate bidding posted its strongest monthly improvement in a year, according to new indexes from JLL, signaling investors are returning to the market even as borrowing costs remain elevated. The firm also reported that July recorded the second highest number of unique bidders in the index’s five-year history, and that lender competition is running well above prior peaks.
Lauro Ferroni, JLL’s head of capital markets research for the Americas, said the recent data show a narrowing gap between the firm’s credit intensity index and bid intensity index. He noted that credit availability tends to lead bidding activity because it influences overall market liquidity.
While broad economic uncertainty persists, JLL observed that bidding continues to increase. Ferroni said active capital in the market appears to be offsetting volatility, with more lenders and investors engaging across asset types.
Commercial real estate bidding rises alongside credit
Credit is flowing more readily from commercial mortgage-backed securities markets, insurance companies, government agencies and debt funds. That marks a shift from the years immediately after the pandemic, when sector stress and rate hikes beginning in 2022 curtailed activity.
Ferroni said lenders are reengaging because they favor real estate exposure and see opportunities to generate yield. He added that the sector avoided a broad wave of distress or defaults, which is encouraging capital to return.
Retail and industrial draw investors
Investment is concentrating in retail and industrial. Retail’s rebound is newer, as the segment had lagged during the pandemic due to e-commerce growth. JLL reported that competition is intensifying because owners are satisfied with current returns and are reluctant to sell.
Industrial has remained strong for several years, supported by e-commerce and by reshoring and reindustrialization. Companies are expanding manufacturing closer to the United States to shorten lead times, limit supply chain risk and, in some cases, reduce tariff exposure, according to a midyear CBRE report. CBRE said manufacturing leasing rose 27% year over year.
Multifamily remains the weakest link
Multifamily continues to show the softest bidding and credit conditions. The sector is digesting a historic wave of new construction. National vacancies are beginning to edge down, but largely due to new properties entering the market. Stabilized vacancies, excluding buildings still in lease-up, increased by 34 basis points in the second quarter, according to CoStar.
No major red flags, gradual momentum expected
Ferroni said he does not see significant warning signs for competition across commercial real estate. He noted that the U.S. Treasury Department’s recent move to buy long-term bonds could aid current underwriting and bolster confidence among investors aiming to bid more aggressively.
“There’s quite a bit of gas left in the tank for further growth,” Ferroni said, adding that momentum should be gradual rather than explosive and that current conditions do not appear frothy.
Editor’s note: JLL reported that bidding for properties in June posted its strongest monthly improvement in a year.
For more on how younger workers are navigating shifting economic conditions, see Wealth advisers say Gen Z job market fears are real.