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Global real estate transaction volumes declined by 13% year-on-year in the first quarter of 2021. According to the recently published JLL (NYSE:JLL) Global Real Estate Perspective, first quarter transaction volumes totalled $187 billion, representing a resilient but uneven stage within the broader investment recovery. The first quarter volumes were bolstered by stronger performance in more mature and liquid markets, including the U.S. UK, France and Japan.

Throughout the first quarter, appetite for higher-quality core and core-plus product persisted. In tandem, demand increased for opportunistic plays in competitive segments of the market. Logistics and multifamily investments represented 63% of all opportunistic transactions in the first quarter (up from 44% in Q1 2020). For Europe, Q1 2021 posted the strongest first quarter on record for industrial and logistics investment with nearly €10 billion transacted, which is more than 40% higher than  the Q1 five-year average (2016-2020).

“While the overall global investment market remained resilient, its recovery is proving to be uneven across geographies and sectors. We continue to see improving economic conditions, continued government stimulus and increasing inoculation rates as providing reasons for optimism and avenues for market improvement, but we do remain cautious given ongoing restrictions in Western Europe and large scale flare ups in India,” says Sean Coghlan, Global Director, Capital Markets Research and Strategy, JLL

An accelerated focus on portfolio diversification was noticeably observed in the multifamily sector. Investment into the sector saw an increase of 66% in Europe (from Q1 2020), led by the UK, Germany and France. In Asia Pacific, Japan was the most liquid market (at US$11.5bn) by a wide margin in Q1, partially attributed to the persistent appetite for multifamily assets in Tokyo, Osaka and Nagoya.

Throughout the quarter, markets historically concentrated with office and retail investments experienced gains in investor confidence. During 2021, investors demonstratedincreased confidencefor select markets in Asia, such as Singapore and Hong Kong, where cultural norms and the structure of housing in the markets limit widespread work-from-home policies.

Cross-border capital flows remained fairlymuted throughout the quarter, offset by markets with deep domestic access to capital. Global investors with ample dry powder and an established on-the-ground presence continue to play a critical role in the cross-border market, deploying US$17.5bn in the first quarter.

According to JLL, additional major themes observed in the first quarter of 2021 include:

• Cross-border investment remains muted: Across the first quarter, intraregional investment share of global volumes slipped to 12%, as challenging border restrictions within Europe weighed on overall activity. Conversely, interregional investment corridors are allowing activity to pick up in select markets. The UK is benefitting from renewed interest from North American and Singaporean firms, investing US$2.9 billion in Q1. In Japan, U.S. firms are increasingly targeted core office and retail product.
• Liquidity stays strong: Target allocations to real estate remain stable and are expectedto reach 10.9% in 2021. Climbing allocations, coupled with a fundraising market that is stabilizing, will continue to provide sources of liquidity to the broader recovery. The closed-end fundraising market demonstrated signs of stability, as year-over-year declines decelerated during Q1 2021 (with fundraising totaling US$30bn).
• Opportunities are scarce: Irrespective of mixed economic performance and real estate market uncertainty, the longer-term gap between liquidity and property offerings remains a challenge to the deployment of capital. This dynamic is amplified at present, as underwriting continues to evolve and bid-ask spreads compress. Given this backdrop, JLL observes core pricing strengthening, and dry powder levels approaching close to record levels at US$363 billion in the first quarter of 2021.
• Depth and risk appetite of lenders improves: In the first quarter, debt markets saw increased activity and heightened competition, as the lender pool expanded for the second consecutive quarter. Despite inflationary pressures and increasing interest rates in the U.S. in recent months with improving vaccination efforts and optimism in various economic indicators, the global debt markets remain in a favorable, historically low interest-rate environment. Lenders remain more aggressive on core, high-quality transactions.
• Price discovery broadening:The convergence of buyer and seller expectations has diversified from growth sectors to stable segments of office and retail markets. Economic reopening across Asia Pacific and swift vaccination rollouts in the U.S. and UK are improving investor sentiment for the office sector. Spreads have improved in core and core-plus segments of the office market, which JLL believes is establishing the foundation for an accelerated recovery in transaction activity.

“One year into the pandemic, operators and investors have a greater understanding of cash flow stability and subsequent operational performance. We see renewed economic optimism unleashing market confidence, and when coupled with the continued appetite to deploy capital into real estate, we expect volumes toimprove in the upcoming quarters,” says Coghlan.