Q2 Global Real Estate Investment Buffeted by Monetary Tightening

Q2 marks third consecutive quarter of significant declines in global investment

Global commercial real estate investment fell by 57% year-over-year in Q2 to US$142 billion. Investment fell by 63% in the Americas, 53% in Europe and 25% in Asia-Pacific. Elevated interest rates and tight credit conditions impacted investment globally. Concerns over the economic outlook in the U.S. and Europe caused more significant investment declines in those regions. The decline in Asia-Pacific was less severe.

The multifamily sector attracted the most investment in Q2 with $39 billion, albeit down 66% from Q2 2022. Industrial investment fell by 41% year-over-year to US$38 billion, while office investment fell 60% to US$29 billion. Retail investment fell by 58% to US$19 billion.

Figure 1: Global Commercial Real Estate Investment Volume, Q2 2023 (US$ Billions - Floating)

Source: CBRE Research, MSCI Real Assets, Q2 2023.

Tight credit conditions, recession fears lower investment in the Americas

Americas commercial real estate investment volume fell by 63% year-over-year in Q2 to US$80 billion. Activity during the quarter was weakened by regional and community banks tightening lending standards, as well as uncertainty about where interest rates were headed. Despite better-than-expected economic growth in the first half of the year, concerns over the U.S. economic outlook dampened investor sentiment.

Multifamily led all sectors with US$29 billion in Q2 investment volume, even though it was 70% less than a year ago. Multifamily real estate fundamentals have stabilized and renter demand was strong in Q2 despite fears of an economic slowdown. Strong fundamentals and an additional source of liquidity via Fannie Mae and Freddie Mac will provide a tailwind for multifamily investment activity in coming quarters.

Industrial investment in the Americas fell by 48% year-over-year to US$23 billion, the smallest decline of the major property types. Industrial real estate fundamentals remained strong and a decrease in construction starts could lead to a dearth of available supply in 2024 and 2025. The positive outlook for industrial will continue to drive investor interest in the sector.

Investment in the Americas office sector fell by 63% year-over-year in Q2 to US$12 billion. Investors remained concerned over future occupier demand and credit availability for office acquisitions was the tightest of any sector. Most transactions for the rest of the year will likely come from distressed sales or motivated sellers.

Retail investment in the Americas fell by 65% year-over-year in Q2 to US$10 billion. Diminishing savings and the restart of student loan payments in October likely will weaken U.S. retail spending in the second half of the year. However, a lack of new supply will provide a cushion to degradation of retail real estate fundamentals. There is the potential for a notable increase in activity during the second half of the year.

Figure 2: Share of Global Investment Volume by Property Type

Source: CBRE Research, MSCI Real Asets, Q2 2023.

Europe has fifth consecutive quarter of year-over-year decline in investment

European commercial real estate investment volume decreased by 53% year-over-year in Q2 to US$39 billion, as the region’s central banks further raised interest rates and there were growing concerns over an economic slowdown.

Office investment in Europe fell by 60% year-over-year in Q2 to US$10 billion, although there was strong investor demand for prime office assets. Despite a stronger return-to-office rate than in the U.S., many occupiers are evaluating their space requirements, which has put lower quality office assets under pressure.

Investment in European industrial assets fell by 46% year-over-year to US$9 billion. Although the industrial vacancy rate increased slightly, structural tailwinds and strong fundamentals are expected to continue driving investor demand for industrial assets.

European retail investment declined by 50% year-over-year in Q2 to US$6 billion. Although persistently high inflation has sapped consumer strength in Europe, we expect interest in the retail sector to improve as price increases continue to slow.

Multifamily investment in Europe fell by 54% year-over-year in Q2 to US$7 billion. CBRE expects the sector will remain resilient due to strong fundamentals.

Quarterly investment in Asia-Pacific at lowest level since 2020

Asia-Pacific (APAC) investment volume fell by 25% year-over-year in Q2 to US$23 billion. Strong investment activity in Korea and Taiwan was offset by a modest decline in Japan and a slow recovery in China.

Office investment in APAC fell by 57% year-over-year in Q2 to US$7 billion—the lowest quarterly total since 2012. Office is expected to remain the region’s leading commercial real estate sector for investment, largely because it provides higher returns than in other global regions. Nevertheless, further repricing of office assets is expected in APAC for the rest of the year.

APAC industrial investment increased by 43% year-over-year in Q2 to US$6 billion, largely due to several portfolio transactions in Japan. While this pace of activity is unlikely to continue throughout the year, investor demand for industrial assets should remain strong due to the prospect of greater rent growth compared with other sectors.

APAC retail investment in Q2 decreased by 32% year-over-year to US$3 billion. Investment was mainly driven by three major shopping mall deals in Singapore and several transactions in Hong Kong. Grocery-anchored retail centers providing relatively high yields continue to attract the most interest from investors.

Global Forecast

We expect that macroeconomic concerns, tight credit conditions and high interest rates will continue to weigh on real estate fundamentals and investment activity in the near term. For full-year 2023, CBRE forecasts a 34% reduction in global investment volume, with decreases of 37% in the Americas, 35% in Europe and 15% in APAC.

As economic conditions stabilize and a clearer outlook emerges for borrowing rates, we expect commercial real estate investment volume will begin to improve in the first half of 2024.

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

Source: CBRE Research, MSCI Real Assets Q2 2023.