In 2023, global cross-border capital flows for commercial real estate are projected to collapse by 52% annually.
According to new research published by CBRE, global cross-regional capital flows totalled $30.5 billion in the first half of 2023, this represents a decline of 52% from the volume recorded in the first half of 2022, and it is the second consecutive half-year period to experience a decrease of about 50% in volume.
This decrease in activity across regions was largely caused by a reduction in the movement of capital from North America to Europe as a result of high-interest rates, restricted debt markets, and economic unpredictability. Inflows into Europe dropped by two-thirds compared to the previous year, which is striking given that the region is the greatest beneficiary of investment from other regions by a significant margin.
According to Richard Barkham, the Global Chief Economist for CBRE, “Global investors will likely remain cautious for the rest of this year due to high-interest rates and economic uncertainty.” Nevertheless, it would appear that inflation has reached its maximum level around the globe and that central banks are either at or very close to the conclusion of their cycles of rate increases. As a result, we anticipate that the international investment market will start returning in the first half of 2024.
Singaporean and Japanese investors made two big acquisitions, which accounted for half of the overall cross-regional inflows to the North American region; this led to a 5% year-over-year rise in cross-regional investment flowing into the region. The Singapore-based GIC’s portion of the $14 billion buyout of real estate investment trust STORE Capital, completed in cooperation with Chicago-based Oak Street Real Estate Capital, contributed to an increase in North American inflows during the first half of 2023. Additionally, Japanese investors purchased a sizeable portion of the New York City office sector.
The amount of capital invested from other regions into the Asia-Pacific (APAC) area fell by around one-third yearly. The industrial and logistics sector, the multifamily housing market, and the office property market each received equal investment. However, investment in office properties in different regions declined by two-thirds compared to the previous year. The favourable exchange rates, reduced costs of borrowing, and positive carry all contributed to a significant amount being sent to Japan from North America.
The industrial and logistics asset classes were the most sought-after internationally, accounting for 37% of the total cross-regional investment volume in the first half of 2023; this was the greatest percentage of any half-year period in the history of cross-regional investment. This industry is particularly appealing due to its tight supply-and-demand dynamics, especially in major cities.
In light of robust consumer fundamentals and constrained new supply, the retail sector was responsible for approximately one-fifth of the total investment volume across all regions. According to CBRE, cross-regional investment in the office sector reached its lowest half-year amount since 2011. At the same time, inflows to the multifamily sector declined significantly year over year to just under $4.8 billion, despite its percentage of overall volume staying the same.
