Global Real Estate Investment Continues to Fall in Q1

Executive Summary

• Global commercial real estate investment volume fell by 55% year-over-year in Q1 2023 to US$147 billion. Volume fell by 56% in the Americas, 64% in Europe and 20% in Asia-Pacific.
• Investment totals for all property sectors fell year-over-year in Q1. Multifamily and office fell the most (-64%) and retail the least (-32%).
• High interest rates, tight credit conditions and the prospect of a moderate recession in the U.S. will further reduce commercial real estate investment activity in 2023. However, activity should begin to pick up later in the year as inflation falls and economic uncertainty subsides.
• Due to high interest rates and slow economic growth, CBRE forecasts that global investment volume will decrease by 26% in 2023.

Q1 global investment declines significantly

Global commercial real estate investment fell by 55% year-over-year in Q1 to US$147 billion. Investment fell by 56% in the Americas, 64% in Europe and 20% in Asia-Pacific. High interest rates, tight credit conditions and a worsening economic outlook were largely to blame for less investment activity.

The multifamily sector attracted the most investment in Q1 with $34 billion, albeit down 64% from a year ago. Industrial investment fell by 55% year-over-year to US$33 billion, while office investment fell 64% to US$31 billion. Retail investment fell by 32% to US$29 billion.

Figure 1: Global Commercial Real Estate Investment Volume, Q1 2023 (US$ Billions - Floating)

Source: CBRE Research, MSCI Real Assets, Q1 2023.

Tight credit, looming recession put pressure on Americas investment

Investment volume in the Americas fell by 56% year-over-year in Q1 to US$86 billion, as high interest rates, tight lending conditions and an uncertain economic outlook weakened capital markets activity.

The multifamily sector had the most investment in Q1 with US$25 billion, a 64% year-over-year decline. Multifamily fundamentals remain historically strong despite slowing rent growth and increasing vacancy. While CBRE does not expect a significant downturn in the sector, certain value-add properties may become distressed throughout the year due to rising debt service costs.

Although industrial investment in the Americas fell by 49% year-over-year to US$23 billion, there is still strong investor interest in industrial assets due to certain secular trends, including e-commerce growth and the reshoring of manufacturing operations. Additionally, a decline in new construction projects should strengthen industrial fundamentals in coming years.

Office investment in the Americas fell by 71% year-over-year in Q1 to US$11 billion, largely due to uncertainty about future occupier demand and tight credit conditions. While investors still appear interested in high-quality office assets, less-desirable Class B and C assets will suffer over the medium-term.

Retail investment in the Americas fell by 32% year-over-year in Q1 to US$18 billion. Nearly half of the total was from a single transaction: the private takeover of Store Capital REIT’s portfolio for US$8.5 billion. When excluding entity-level transactions, retail investment volume fell by 53% year-over-year. Relatively strong retail fundamentals could face headwinds as consumer spending weakens throughout the year.

Figure 2: Property Sector Share of Global Investment Volume

Source: CBRE Research, MSCI Real Asets, Q1 2023.

Europe has biggest decline in Q1 investment

European investment decreased by 64% year-over-year in Q1 to US$37 billion due to rising interest rates and economic uncertainty.

Office investment in Europe fell by 74% year-over-year in Q1 to US$9 billion. Despite a relatively strong return to office, Europe is seeing a bifurcation in the office market with investors mostly targeting higher-quality assets.

Industrial investment fell by 70% year-over-year in Europe to US$6 billion. Despite a slowdown in leasing activity, CBRE expects continued investor demand for industrial properties due to relatively strong overall fundamentals.

European retail investment fell by 46% year-over-year in Q1 to US$7 billion. Although high inflation continues to weigh on consumers, an increase in international tourism could boost the sector.

Multifamily investment in Europe fell by 63% year-over-year in Q1 to US$8 billion. Although rising debt costs weakened demand, CBRE expects the sector will remain resilient due to strong fundamentals.

Japan & China boost APAC investment volume

Asia-Pacific (APAC) investment volume fell by 20% year-over-year in Q1 to US$24 billion. Strong investment activity in Japan and mainland China led to APAC having the smallest decline in Q1 investment volume of the three global regions.

Office investment in APAC fell by 18% year-over-year in Q1 to US$11 billion. Japan and mainland China accounted for the bulk of office investment in Q1 with investors preferring Tier 1 cities in those countries. Investor interest in APAC office assets is expected to remain strong given the relatively high rate of return to the office in the region.

Industrial investment in APAC decreased by 43% year-over-year in Q1 to US$3 billion, largely due to limited availability of prime assets and a slowdown in e-commerce growth. Markets with low vacancy, such as Japan and Australia, likely will attract investor interest throughout the year.

APAC retail investment in Q1 increased by 12% year-over-year to US$5 billion. Activity was boosted by deals in Singapore and Hong Kong. Increasing regional tourism should boost prime retail assets in major cities and garner investor attention.

Global Forecast

We expect that a worsening macroeconomic outlook, tight credit conditions and financial market volatility will weaken real estate fundamentals and investment activity in Q2 and Q3. For the full year, CBRE forecasts a 26% reduction in global investment volume, with decreases of 27% in the Americas, 30% in Europe and 5% to 10% in APAC.

As economic conditions stabilize and a clearer outlook emerges for central bank policy, we expect commercial real estate investment volume will begin to improve in Q4.

Figure 3: Global Investment Volume by Sector (US$ Billions - Floating Rate)

Source: CBRE Research, MSCI Real Assets Q1 2023.

Figure 4: Seasonally Adjusted Investment Volume (US$ Billions - Floating)

Source: CBRE Research, MSCI Real Assets, Q1 2023.