Nine months of bumpiness in the financial markets, driven largely by the slowdown in China, oil pricing and, most recently, the Brexit, continued in Q2, but is showing signs of calming. While this has impacted deal flow in 2016 and uncertainty remains around the upcoming U.S. election, real estate capital markets are starting to normalize after atypically high volumes in 2015. As such, investment volumes are down overall – and expected to decline 10.0 to 15.0 percent from 2015 at year-end – but still up from 2014 levels. Capital, both domestic and offshore, remains active yet selective with an increased focus on risk mitigation.
Life insurance companies and banks are poised to be the lenders of choice as CMBS lending slowed dramatically due to market volatility. Life companies recorded a historic year for originations in 2015, with $76.2 billion, a 25.5 percent annual increase and the lender group’s highest origination volume on record. Commercial banks and other balance sheet lenders who have opportunistically filled the CMBS gap are also taking market share. In the second quarter, bank loan originations increased 33.0 percent year-over-year, more than any other lender type. However, regulators are taking note of increased bank—notably, small- and mid-sized bank—exposure to commercial real estate.
For more detail on the above and other investment trends, read the full Investment Outlook.