Increasing interest rates in many countries have caused commercial real estate investment to drop significantly across the world, a report has stated. According to a recent CBRE study, global commercial real estate investment volume dropped 51% YOY in the third quarter of 2023 to $142 billion.
Investment fell 53% in the Americas, 54% in Europe and 31% in Asia Pacific.
Multifamily investment volume also saw a decline in Q3, dipping by 59% YOY to $37 billion, while industrial investment slipped by 44% to $32 billion.
Office investment fell 63% to $26 billion, with comparatively weak fundamentals and a lack of liquidity. Retail investment slipped 35% to $25 billion.
Globally, high-interest rates and tight credit conditions are expected to restrict commercial real estate investment activity in H1 2024. According to CBRE’s predictions, global commercial investment volume in 2024 will match this year’s total, with a 5% decrease in the Americas, a 5% rise in Europe and a 5-10% increase in Asia Pacific.
INVESTMENT IN THE AMERICAS
Increasing interest rates, strict lending environment and fear of an economic slowdown pulled down commercial real estate investment volume in the Americas to $86 billion in Q3 2023.
With $30 billion in investment volume, multifamily led all sectors but slipped by 61% from last year. Multifamily investment is expected to stay resilient, as higher mortgage rates favor renting than owning a home. Some markets, however, are at risk of overbuilding and value-add properties will face difficulty in refinancing in 2024.
Industrial investment dropped 43% YOY to $21 billion, despite robust demand for industrial space, especially from e-commerce operations, expected to drive investor interest in the short term.
Office investment plummeted by 63% YOY to $12 billion. Availability of credit for office acquisitions was the tightest among all sectors, with investors concerned about occupier demand in the future.
Retail investment saw a 31% YOY decline to $16 billion. Consumer spending remained strong this year, but reducing savings and the resumption of student loan payments may weaken retail spending in the U.S. in the short term. However, the lack of new supply will reduce any deterioration in retail real estate fundamentals.
INVESTMENT DROPS IN EUROPE
Investment volume in Europe declined for the seventh consecutive quarter, as higher interest rates and slow economic growth saw investment volume falling by 54% YOY to $36 billion.
Office investment fell 66% YOY to $9 billion. Despite Europe posting a higher return-to-office rate than the U.S., many European countries are reassessing their space requirements, which have dropped for lower-quality office assets. There’s a strong demand for prime office assets.
Investment in industrial assets dropped by 55% YOY to $7 billion, even as the overall industrial vacancy rate saw a marginal increase as expansion by e-commerce companies slowed. Average industrial rent continues to rise.
Retail investment in Europe fell by 52% YOY to $6 billion. While many consumers have additional savings, continuing inflation and slow economic growth will weaken consumer confidence.
Multifamily investment saw a decline of 49% YOY to $6 billion, the lowest quarterly investment for the sector since 2013.
ASIA PACIFIC SHOWS RESILIENCE
The rise in retail and hotel acquisitions saw investment volume in Asia Pacific dropping 30% YOY to $20 billion.
Office investment posted a 61% YOY decline to $6 billion, the lowest quarterly total since 2011. Further repricing of office assets is likely in the short term, mainly in Hong Kong and the Pacific.
Industrial investment in Asia Pacific slipped 9% YOY to $4 billion. Long-term leases have been gaining importance over short-term leases in this region. While industrial investment activity is expected to be muted in the fourth quarter, core funds will target markets with robust rent growth prospects, like Singapore and Australia.
Retail investment posted a 15% YOY decline to $4 billion. Large asset acquisitions in Australia, Japan and Singapore fueled activity in the sector.