The journey so far suggests global real estate market stabilization to take hold mid-2023
December 07 2022 - 3:00AM
After a volatile year of geopolitical tensions, economic shocks and
uneven monetary policy, Colliers (NASDAQ and TSX: CIGI) anticipates
the process of stabilization of the global real estate market to
take hold by mid-2023 in its latest Global Investor Outlook. While
some countries such as the UK and U.S. have already witnessed a
rapid pricing reset, this has not been universal. Investors can
expect big differences in how the reset plays out across sectors
and markets next year.
“Real estate markets offer a solid, long-term investment and
income stream once pricing levels are clearer. Local events and
macroeconomic factors still have the potential to disrupt positive
momentum. Investors should be prepared for regression before
progression in markets that remain susceptible to further shocks,”
said Tony Horrell, Head of Global Capital Markets. “We anticipate
investment activity to pick up as central banks end rate hikes and
greater economic certainty emerges. In the meantime, investors will
remain on the lookout for bargains, with significant funds being
drawn up to act.”
Liquidity and sustainability driving
opportunities
Capital values will continue to be negatively impacted by the
transition to higher interest rates, causing some distress in 2023
especially for non-core assets. There is an acceleration in
opportunistic fundraising, indicating a focus on finding pockets of
opportunity amidst the current reset, which include:
- Closed-ended real estate funds
reaching their termination dates.
- Investors that may be caught short
when it comes to re-financing. Creative routes to market in the
debt space as more investors explore solutions like mezzanine debt,
bridge loans and project finance.
- Listed funds like REITS and
developers that continue to trade at discounts to net asset value,
creating opportunities to acquire bonds and convert to equity,
place capital into existing structures or in some cases
privatize.
More broadly, environmental, social, and governance (ESG)
criteria continues to be a key factor in investor decision making.
In 2022, only 10% of investors had a capital improvement, disposal,
or acquisition strategy that incorporated ESG considerations. This
has risen to 17% in 2023, with 45% of respondents looking to
dispose of up to 20% of their existing portfolio in the next five
years.
“In response to occupier preferences, growing regulatory
requirements and the rising cost of operating assets, investors are
rethinking value and placing a greater emphasis on a range of ESG
factors this year. There is both an expectation and greater
evidence that assets with strong sustainability characteristics can
command a premium and those that don’t will be heavily discounted,”
said Damian Harrington, Head of Research for Global Capital Markets
and EMEA. “It will be interesting to see just how capital is
distributed across the capital stack in terms of refinancing, the
retrofitting of assets, new construction, or divestitures.”
Core assets prevail
Market volatility has led investors to focus on fundamentals and
defensive strategies. Across the board, investors’ top three sector
preferences for 2023 are offices (60%), industrial & logistics
(60%), and multifamily/BTR (48%). While core assets in established,
larger cities are investors’ preference (60%), sectors closely
connected to changing demographic and economic realities such as
multifamily and senior housing are driving activity in smaller,
growth cities. There is growing interest in first-mile logistics as
investors recognize opportunities for nearshoring or reshoring of
manufacturing to mitigate supply chain disruption and increase
inventory, with focus on container terminals having doubled over
the last 12 months in EMEA and APAC.
Rising costs and challenges ahead
Investors surveyed cited interest rates (88%), inflation (74%),
and supply chain disruption (68%) as their primary macro challenges
for the year ahead. Furthermore, current inflation and interest
rates are fueling an increase in operational and construction costs
already exacerbated by supply chain issues and energy price
increases. Globally, 85% of investors said rising construction
costs would have the most negative influence on their ability to
pursue their investment strategies, followed by higher asset
operating costs (77%).
“Understanding and managing the multitude of rising cost
pressures impacting real estate is critical. Cost of capital is
only one part of the equation,” said Chris Pilgrim, Director of
Global Capital Markets. “An experienced partner with local
expertise can help investors understand market nuances that impact
costs and values.”
About the 2023 Global Investor Outlook
The third edition of our annual outlook for global property
investors is based on 30+ in-depth interviews with Colliers Capital
Markets global and regional experts and a survey of 750+ investors
between October and November 2022. The findings and opinions
featured in the report are shaped by their responses.
About Colliers
Colliers (NASDAQ, TSX: CIGI) is a leading diversified
professional services and investment management company. With
operations in 63 countries, our 18,000 enterprising professionals
work collaboratively to provide expert real estate and investment
advice to clients. For more than 27 years, our experienced
leadership with significant inside ownership has delivered compound
annual investment returns of approximately 20% for shareholders.
With annual revenues of $4.6 billion and $92 billion of assets
under management, Colliers maximizes the potential of property and
real assets to accelerate the success of our clients, our
investors, and our people. Learn more
at corporate.colliers.com,
Twitter @Colliers or LinkedIn.
Media Contact
Andrea CheungGlobal Manager,
CommunicationsAndrea.cheung@colliers.com 416-324-6402
A photo accompanying this announcement is available
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