JLL CEO Ulbrich Downplays Interest Rate Uptick Impact on CRE Deals
The CRE market has come to terms with the current interest rate level, JLL CEO Christian Ulbrich said during a Money Movers interview on CNBC last week. The recent uptick in rates is not helpful for deal-making but is not a disaster, he said.
“As long as it kind of stays in that corridor up to 4.50% on the 10-year (treasury yield), I think the market will be fine,” he said, acknowledging a slightly increased cost of capital that prices are likely to adapt to.
JLL estimates there is $373 billion of dry power on the sidelines that should drive growth during the coming year. Transactions were up for JLL during the third quarter, driven by all real estate sectors, including office, said Ulbrich. The most robust interest has been in the residential and hotel sectors, he said.
Office continues to lag, but Ulbrich said the complete write-down of office has always been overstated. Instead, he highlighted a bifurcation of the office sector where the best buildings are attracting higher rents while the low end of the market is experiencing increased vacancies.
“As always, you have to sit on the right side of the market,” he said.
The US market remains a strong global geographic market for JLL. Within the United States, he said he expects to see a revival of investment in traditional locations such as New York, Atlanta, Boston and Chicago.
“The South is still very, very strong, but there's a bit of a recovery in the more traditional investment market gateway cities,” he said.
Investment activity remains way behind pre-Covid levels as the CRE market continues to digest price declines driven by the sharp increase of interest rates, said Ulbrich. In the office sector, uncertainty continues to slow activity.
“The best companies, they want the best space for their employees, and so that is obviously helping the best buildings,” said Ulbrich. “Other buildings have to be upgraded or they have to find a new purpose.”