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OUR COMPANY AFFILIATES

CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2018 revenues of $21.3 billion and more than 90,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #146 in 2019. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $106 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Mike Lafitte, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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CAPITAL WATCH

The still-healthy appetite for real estate assets, supported by solid property fundamentals and declining debt costs, has maintained ample liquidity in the commercial real estate space. Competition to place debt, a trend exacerbated by the growth of private debt funds, continues to compress loan spreads. Despite the sharp decline in entity-level and international investor sales, 2019 is on pace to becoming the fourth highest year for transaction volumes on record. Cap rates are near cyclical lows, while spreads widened as treasury yields contracted in response to waning optimism and the recent reversal in monetary policy. Sustained investment activity combined with lower interest rates led to an increase in originations, and although mortgage demand remains healthy, bank underwriting continued to tighten.

TRANSACTION VOLUMES

Current Status: Through 3Q19, the sharp decline in entity sales was partially offset by rising single-asset and portfolio sales, resulting in only a slight decline in year-to-date transaction volumes. The still-elevated sales activity speaks to the appetite among U.S. investors, particularly given the broad decline in cross-border sales in 2019. Excluding entity-level sales, year-to-date sales activity rose by 10% in comparison to same period in 2018. Despite the contraction in sales activity, 2019 will be another banner year for U.S. commercial real estate transactions.

Outlook: The combination of strong property fundamentals across most property sectors and accommodative capital markets environment will maintain elevated sales activity. The low interest rate environment and resulting reduction in hedging costs, combined with continued income growth, should attract greater cross-border investment going forward.

Q3 2019

$154bn

4%

U.S. Transaction Volumes
(Q3 2018 – Q3 2019)

316

23%

Loan Originations Index
(Q3 2019)

1.90%

79bps

10-Year U.S. Treasury
(12/12/19)

1.71%

79bps

30-Day Libor
(12/9/19)

YoY from Q3 2018

U.S. COMMERCIAL REAL ESTATE TRANSACTION VOLUME

PRINCIPAL CONTRIBUTOR:
Jeremiah Lee
CAP RATES

Current Status: Transaction cap rates edged downward through the third quarter as investment activity, particularly for industrial and apartment properties, rose in comparison to the first three quarters of 2018, according to Real Capital Analytics.

Outlook: With property fundamentals on relatively solid footing, the lower cost of debt should support continued sales activity, maintaining upward pressure on values and holding cap rates at cyclical lows through the near-term.

CAPITALIZATON RATES

Source: Real Capital Analytics

CAP RATE SPREAD TO 10-YEAR TREASURY

Current Status: The cap rate spread-to-treasuries widened in recent months, as interest rates trended downward and cap rates remained relatively stable. As a result, commercial real estate remains attractively priced. As of October 2019, the implied cap rate-to-treasury spread stood at 389 bps, versus a long-term historical average of 334 bps.

Outlook: Cap rate spreads will remain at above-average levels over the near-term, driven by the combination of limited cap rate volatility and low treasury yields, supported by modest inflation expectations, accommodative monetary policy and negative yields internationally.

REAL ESTATE SPREADS
Sources: Real Capital Analytics, Green Street Advisors, Federal Reserve
LOAN VOLUME AND LENDER COMPOSITION

Current Status: Led by increased life company and alternative lender originations, the MBA mortgage originations index increased by 23% y-o-y, nearing its cyclical high. The increase in industrial, office and multifamily loans more than offset the notable decline in retail and hotel lending.

Outlook: Driven by low interest rates and strong demand for commercial real estate assets, commercial mortgage originations are expected to reach $650 billion in 2019, surpassing 2018’s record volume of $574 billion, according to the Mortgage Bankers Association.

LOAN VOLUMES
Source: Mortgage Bankers Association
LENDER UNDERWRITING STANDARDS

Current Status: Lending standards continued to tighten into the latter part of 2019, while demand for loans rose spurred by reduced debt costs and the rebound in transaction activity following a lackluster first half of the year, according to the Fed’s October 2019 Senior Loan Officer Opinion Survey.

Outlook: Despite the still-healthy demand for commercial real estate debt, indications of slowing economic growth ahead combined with recent volatility should prompt further tightening of underwriting standards.

SENIOR LOAN OFFICER OPINION SURVEY
Source: Federal Reserve Board
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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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