Colliers: ‘big reset’ as real estate markets stabilise by mid-2023

Global real estate markets will stabilise by the middle of next year but investors can expect big variations in how the reset plays out across sectors and markets, Colliers said in its 2023 Global Investor Outlook that was published yesterday.

After a volatile year of geopolitical tensions, economic shocks and uneven monetary policy, “real estate markets offer a solid, long-term investment and income stream once pricing levels are clearer,” said Tony Horrell, head of global capital markets, Colliers.

But “local events and macroeconomic factors still have the potential to disrupt positive momentum and investors should be prepared for regression before progression in markets that remain susceptible to further shocks,” he said.

Colliers expects investment activity to pick up as central banks end rate hikes and greater economic certainty emerges. In the meantime, investors will remain on the lookout for bargains, with significant funds being drawn up to act.

The survey shows that the cost of debt was a big concern, with 78% of EMEA respondents saying it would negatively impact their real estate strategy in 2023. A further 63% said the availability of debt was going to have a negative impact. These responses were in-line with those in other global regions – APAC and the Americas.

When looking at broader macro factors, EMEA stood out when it came to concerns over energy cost/supply: 78% of EMEA investors ranked energy supply/costs as their top concern. Other key concerns in the region were rising geopolitical tension, selected by 72% of respondents, and currency fluctuations (61%).

Capital values will continue to be negatively impacted by the transition to higher interest rates, causing some distress in 2023, especially for non-core assets. There will be an acceleration in opportunistic fundraising, indicating a focus on finding pockets of opportunity amidst the current reset. These include closed-ended real estate funds reaching their termination dates, investors caught short when it comes to re-financing and creative routes to market in the debt space as more investors explore solutions like mezzanine debt, bridge loans and project finance.

“Discounts to net asset values in the listed sector remain high, and we’ll see private equity and similar investors taking advantage of that arbitrage,” said Luke Dawson, managing director EMEA cross border capital markets, Colliers. “We expect to see selective ‘take-private’ scenarios happen in Europe, with investors taking a controlling interest in REITs and then delisting.”

More broadly,environmental, social, and governance (ESG) criteria continue to be a key factor in investor decision making. In Colliers’ previous 2022 Global Investor Outlook report only 10% of surveyed investors had a capital improvement, disposal, or acquisition strategy that incorporated ESG considerations. As of 2023, this has risen to 17%, with 45% of respondents looking to dispose of up to 20% of their existing portfolio in the next five years.

“In response to occupier preferences, growing regulatory requirements and the rising cost of operating assets, investors are rethinking value and placing a greater emphasis on a range of ESG factors this year,” said Damian Harrington, head of research, global capital markets, Colliers. “There is both an expectation and greater evidence that assets with strong sustainability characteristics can command a premium and those that don’t will be heavily discounted.”