Global real estate investment activity is set to rebound in the second half of 2023 with core and value-add assets likely to benefit as the economic outlook improves, according to international real estate advisor Savills. 

 

The amount of ‘dry powder’ available for real estate investment at the end of 2022 was US$828 billion, down year-on-year, but still more than 80% up on 2019 / pre-Covid-19 levels, it stated.

 

According to Savills, the Middle East economies proved resilient to the global headwinds of higher inflation and rising interest rates in 2022.

 

"The upswing in oil prices resulted in higher government revenues for the oil-rich Middle Eastern economies which led to increased spending by regional governments," remarked Swapnil Pillai, Associate Director, Middle East Research.

 

"Development activity and new project launches will continue to remain upbeat throughout 2023, as regional economies prove relatively more resilient to the global headwinds of higher inflation and rising interest rates," he noted. 

 

"The bulk of these forthcoming developments are concentrated in Saudi Arabia and UAE, where the focus is on infrastructure. Given that most of these projects are greenfield, they give investors a golden opportunity to create long-term, sustainable and international-grade assets," he added.

 

To counteract low capital value increases and subdued rental growth in most real estate sectors globally, Savills says investors will focus on core picks and value-add strategies (retrofitting, repurposing, focus on gaps of supply). It therefore predicts:

 

•Prime offices in prime CBD locations in core markets (London, Paris, Berlin, Tokyo, Singapore, Sydney), with low vacancy rates, will retain their attractiveness for core/core plus strategies. Occupiers are seeking energy efficient, well designed office accommodation, and green certified offices remain in low supply. Prime rents may edge upwards in several key markets, a combination of inflationary pressures and limited availability of Grade A stock.

 

•Prime logistics in key trade hubs and countries with rising e-commerce penetration rates will remain in the top of investor strategies. Logistics vacancy rates are at historically low levels in the UK, Germany, Netherlands, France, Spain, US, and speculative development is set to decline. Although occupier demand will soften from Covid-19 highs, low availability and upwards pressure on rents should be sustained.

 

•Prime multifamily housing is one of the few asset classes where landlords can regularly rebase rents to capture growth, with new-built properties in some markets also exempt from rent regulations. Structural shortages and relatively low levels of new residential construction in large cities in the US, Japan, Germany, Australia, UK, Nordics, Spain and France will drive income returns, although affordability is increasingly becoming a political issue.

 

•Value-add strategies including retrofitting older office buildings to green standards and repositioning assets with high vacancy rates into alternative uses, including life sciences, residential and hotels, will continue to be at the forefront in 2023, however, high construction and renovation costs will remain a major headwind to investors seeking yield.

 

•Rising interest rates, causing pricing corrections, are likely to trigger some distressed sales, although to a lesser extent than in the Global Financial Crisis as leverage levels are lower. Opportunistic investors are likely to take advantage of assets with long-term value through active asset management and repositioning, especially repurposing retail and offices in secondary locations in major cities (US, UK, Australia), into residential, hotels, life sciences, last-mile logistics or mixed uses. 

 

•Structural change, including technological innovation, climate change risks and demographics, remain compelling for certain alternative assets types. Savills top pics include data centres and life sciences in the US, UK, Europe, India, China, and Australia, living sectors in the US, UK, Europe, Japan and Australia and renewables infrastructure across all geographies. 

 

Eri Mitsostergiou, the Director in Savills World Research, said: "Most labour markets continue to defy pessimism, and thus the real estate occupational markets generally remain robust, especially for prime commercial assets in key global markets."

 

"The slowdown in construction activity, due to rising costs and supply chain disruptions, will keep demand and supply in balance across most prime market segments, thereby supporting long-term investor activity" he added.-TradeArabia News Service