Global Investment Declines Sharply in Q4 2022

Executive Summary

• Global commercial real estate investment volume fell by 60% year-over-year in Q4 2022 to US$226 billion. Volumes fell across all regions, down by 63% in the Americas, 62% in Europe and 29% in Asia-Pacific.
• Full-year global volume totaled US$1.14 trillion, down by 20% from 2021’s record amount. While the first half of 2022 had historically strong volume, rising interest rates and worsening economic conditions weighed on investment activity in the second half.
• Investment totals for all property sectors fell year-over-year in Q4. Multifamily fell the most (-72%) and hotels the least (-20%).
• Expectations for continued monetary tightening and a moderate recession in 2023 will inhibit commercial real estate investment activity. However, activity should begin to pick up around midyear as uncertainty abates.
• CBRE forecasts that global investment volume will decrease by 11% in 2023 but still exceed the pre-pandemic high in 2019.

Global investment drops sharply in Q4

Global commercial real estate investment volume fell by 60% year-over-year in Q4 2022 to US$226 billion. Investment fell by 63% in the Americas, 62% in Europe and 29% in Asia-Pacific (APAC), largely due to rising interest rates and deteriorating economic conditions.

Multifamily remained the largest sector with US$61 billion in investment, down by 72% from a year ago. Office investment fell by 57% year-over-year to US$56 billion, while industrial investment fell by 59% to US$49 billion. Despite remaining relatively resilient in the first three quarters of the year, retail investment fell by 53% in Q4 to US$29 billion

Full-year 2022 global volume fell by 20% year-over-year to $1.14 trillion—second only to 2021’s record total. Annual volume fell by 17% to US$698 billion for the Americas, by 27% to US$324 billion for Europe and by 19% to US$118 billion for APAC. There was record investment in the first half of 2022 but activity slowed drastically in the second half due to rising interest rates and economic uncertainty.

Figure 1: Global Commercial Real Estate Investment Volume

Source: CBRE Research, Real Capital Analytics, Q4 2022.

Americas volume down across all property sectors

Investment volume in the Americas fell by 63% year-over-year in Q4 to US$131 billion, as rising interest rates, tighter lending conditions and economic uncertainty took their toll.

While the multifamily sector had the most investment in Q4 at US$49 billion, it also had the largest year-over-year drop in volume (-70%) of all. Multifamily market fundamentals remain historically strong but have weakened significantly in recent quarters. While we don’t anticipate any significant downturn for the sector, certain value-add properties in rapid-growth cities may become distressed.

Americas region industrial investment fell by 58% year-over-year in Q4 to US$33 billion. Despite the decline, there is still strong investor demand for industrial. The sector will continue to benefit from secular shifts, such as increased e-commerce spending and production onshoring. A slowdown in new construction starts will help further boost industrial fundamentals in coming years.

Q4 investment in the Americas office sector fell by 67% year-over-year in Q4 to US$19 billion. Uncertainty about future office usage levels is impacting investment in the sector. While investors continue to covet prime Class A buildings, we expect difficulty for less-desirable Class B and C assets over the coming quarters.

Investment volume in the Americas retail sector fell by 59% year-over-year in Q4 to US$16 billion. Retail was the only major sector with an increase in annual volume last year, up by 3% to US$87 billion. Despite worsening economic conditions, retail real estate fundamentals have been bolstered by little new supply over the past 10 years.

Figure 2: Property Sector Share of Quarterly Global Investment Volume

Source: CBRE Research, Real Capital Analytics, Q4 2022.

European investment slowdown exacerbated by war in Ukraine

European investment volume fell by 62% year-over-year in Q4 to US$64 billion, largely due to rising interest rates and an economic slowdown. Europe dodged a more severe downturn as a mild winter so far this year has caused a drop in energy prices.

Investment in Europe’s office sector fell by 64% year-over-year in Q4 to US$19 billion. As in the U.S., the office market is bifurcated in Europe, with investors mainly targeting only prime assets. Overall office fundamentals remain relatively stronger in Europe due to higher office usage levels.

Industrial investment in Europe also fell by 64% year-over-year in Q4 to US$10 billion. Fundamentals in the region weakened slightly, with slower occupier demand and a small increase in vacancy.

European retail property investment fell by 40% year-over-year in Q4 to US$10 billion. While a worsening economy has hurt retail in the region, we expect stabilizing fundamentals over the coming quarters will attract investment.

Multifamily investment in Europe fell by 78% year-over-year in Q4 to US$12 billion. The large decrease is in part due to two large entity transactions that occurred in Q4 2021. Multifamily market fundamentals remain strong.

APAC investment slows least

Asia-Pacific investment volume fell by 29% year-over-year in Q4 to US$30 billion. Activity in China and Japan began to rebound but increased financing costs caused investment in Singapore to slow. Full-year 2022 APAC volume fell by 19% to US$118 billion.

Office investment in APAC was down just 4% year-over-year in Q4 to US$18 billion. There were notable sales of CBD office assets in Japan and Korea as well as decentralized office assets in China and Hong Kong. The office sector remains attractive in APAC as the region has seen a strong rebound in office usage.

Industrial investment in APAC totaled just under US$6 billion in Q4, down 53% from Q4 2021. Properties in Australia and Japan were highly sought after. We expect both markets will continue to attract significant levels of investment in 2023 due to low vacancy in Australia and an attractive yield spread in Japan.

APAC retail investment fell by 50% year-over-year in Q4 to US$3 billion. The gradual increase in regional tourism should fuel demand for prime retail assets in major cities.

Global Forecast

We expect a moderate global recession in 2023, which along with interest rate volatility will weigh on real estate fundamentals and investment activity for several quarters. As central bank policy becomes more predictable and economic conditions stabilize, we expect that commercial real estate investment will increase.

CBRE forecasts an 11% decrease in global investment volume for 2023, with a 15% decrease in the Americas, a 5%-to-10% drop in Europe and an up to 5% decrease in APAC. Significant year-over-year decreases in investment are expected to continue in Q1 and Q2, followed by a healthy recovery in the second half of the year.

Figure 3: Global Investment Volume by Property Sector

Source: CBRE Research, Real Capital Analytics Q4 2022.

Figure A1: Seasonally Adjusted Investment Volume

Source: CBRE Research, Real Capital Analytics, Q4 2022.