Global Capital Outlook

Signs emerge of rising transaction activity in the coming year

Since the onset of the rate hike cycle, many investors and forecasters have faced more challenges than opportunities in commercial real estate markets around the world.

But, broadly speaking, 2025 is looking different.

Borrowing costs and real estate values in most markets have stabilized and transactions are on the rise, bolstered by institutions putting their weight of capital into an increasing number of deals. In-favor property sectors – most notably in transparent markets – saw some yield compression in 2024, though bid-ask variability is likely to persist as bond indices continue to fluctuate.

On top of this, while the risk of an economic downturn isn’t off the table, broad-based economic growth is projected; the International Monetary Fund sees the global economy growing at 3.2% in 2025, on par with 2024 levels.

These factors are contributing to a real estate market on the precipice of an improving liquidity cycle. With capital becoming more active and engaged in opportunities and borrowing costs having retreated over the past year, history suggests these scenarios have been opportune times to invest in commercial real estate markets. With that said, investors will continue to operate in a market with heightened complexity and performance will vary by location and sector even as overall transaction momentum improves.

We’re already seeing institutional capital become more active in major markets, especially for larger transactions. Over the past six months, some 43% of U.S. transactions over $100 million were awarded to institutional buyers, up from 27% in 2023.

In some of the world’s more resilient markets – most notably in the likes of the U.S., UK, Japan and South Korea – top-quality real estate is once again attracting institutional bidders.

It’s not only institutional capital that’s becoming more active. Investment activity by private wealth investors grew by nearly 190% between 2007 and 2023, yet this source of capital is currently estimated to be less than 5% allocated to real estate. We expect private wealth to remain more active in this next cycle – with allocations rising for select, often unique, opportunities in prime locations of core markets.

Investors have become increasingly demanding of higher returns in order to compete with fixed income yields. As core capital becomes more active, it will need to be more creative to compete in the asset class, in particular for more in-favor sectors.

Central banks’ initial rate cuts in 2024 spurred increased investment market activity. Inflation risk has diminished from peak levels and additional monetary easing is likely to continue through 2025 and into 2026.

Lower rates will aid investors’ refinancing efforts and boost M&A activity which has been more muted. The cost of debt has also improved since year-end 2023, and debt origination volumes are trending upward as lenders have broadened their focus

However, risks remain evident and highly dynamic, not least domestic policy risk and geopolitical risk. The continued complexity and uncertainty of the policy-making environment in 2025 across economies will mean we will need to retain a close eye on the regulatory environment and its impacts.

We expect investors to have a greater focus on sector diversification as transaction markets improve, across a range of direct, indirect and M&A strategies. In underwriting, income growth and cash flow will be in focus in the short term as investors continue to balance cyclical and secular pressures. Yield compression is already evident for in-favor sectors, such as living, logistics and select alternatives. Investors’ shift toward these sectors in recent years alongside the interest in investing in operating platforms will continue.

As supply chains continue to nearshore (an ongoing trend), momentum in logistics and industrial construction is set to build, particularly in the U.S. where tenant demand will drive leasing activity for manufacturing sites. Efforts to either upgrade or replace ageing industrial buildings with more efficient spaces will also sustain the sector’s drive.

The living sector’s momentum will continue apace, across both mature and growing markets. Over the next five years, JLL expects $1.4 trillion will be deployed into living strategies. Transactional momentum is already building in the U.S., UK, Germany and Japan, as new deliveries taper off and rental rate growth normalizes. 

Investors’ wider search for opportunities will give rise to more opportunistic sectoral diversification. The long-term growth potential of alternative sectors, such as data centers, will continue to attract large institutional and cross-sector investors. Investment in data centers is strongest in the U.S., where 58% of data center investment has been focused over the past five years. However, there is growing impetus in Asia Pacific and parts of Europe, where investment is rising in particular due to the dramatic increase in data consumption in Greater China and Japan.

Highest-quality office assets are poised to lead the way, as tenants gravitate to newer buildings, albeit the low vacancy levels and muted deliveries of such buildings will limit growth in the short-term. Globally, office leasing has improved as financial, legal and tech firms implement return-to-office mandates for their employees, and confidence in the office as the primary place of work grows. JLL’s 2024 Future of Work survey shows that 85% of organizations globally now have a policy of at least three days of office attendance per week.

At the same time, availability of the most in-demand office space in many sought-after CBD locations across the globe is decreasing. In the U.S., new office deliveries will grind to a near halt in the next two years. Already, the supply of offices less than 10 years old has been steadily declining since 2022 and is now 22% below end-2022 levels.

While Europe’s average CBD vacancy is 5%, major markets – such as Paris’ CBD and London’s West End – are respectively down to as low as 0.5% and 1.7% vacancy, respectively, for new space. CBD vacancy is also below 5% in select Asia Pacific CBDs, such as Tokyo and Seoul.

In parts of Asia where office fundamentals have been most resilient, cross-border investors have and continue to express appetite for opportunities. Larger, prime offices in Japan remain attractive, and cross-border investment into offices is up by triple-digit percentages in Japan and Australia year-to-date. Appetite for offices in Japan and Korea is particularly high due to low vacancy rates and consistent rental growth.

It’s increasingly clear that 2025 will be a year of both growth and complexity for our industry. We’ll see investors return to the fold as real estate lending and transactional markets further improve – and crucially, for the office sector, as more companies seek additional space. All this, hopefully, in a time of positive economic growth.