Schroders Capital Global Real Estate Lens August 2023: your go-to guide to global property markets
Our latest analysis highlights the key data and trends that matter to global real estate investors.
Our monthly Global Real Estate Lens summarises the key data and trends for prevailing economic and capital market conditions, real estate occupier markets, and private real estate debt markets.
Current market circumstances and the economic outlook are likely to continue to lead to pressure on pricing of real assets, globally, over the coming months. Recent events in the banking sector and the risk of this triggering broader contagion effects may add to the pressure. Fringe markets and secondary assets remain most susceptible to anticipated declines.
In the August Lens we highlight the following:
- Schroders group continues to see high inflation across a wide set of markets, though pressures have eased (lower energy prices, normalisation in supply chains) and the trend is pointing downwards.
- Inflation has however moved into the service sector and into wages and pay – as such, core inflation will remain sticky.
- To counter prevailing high inflation, monetary policy has become very restrictive, but should be at or close to peak now in the US and the eurozone.
- Investment activity remains very subdued with volumes in in major markets around the level last seen during the Global Financial Crisis (GFC).
- US debt levels have seen a 55% increase from post GFC levels, and the declining valuations could trigger a vicious cycle on the availability of credit finance, especially those provided by US regional banks
- In the rest of the world credit conditions have tightened as well, but borrowing levels in Europe are still 20% below post GFC levels and bank lending has been more strictly regulated; as result, less contagion and distress is expected in these markets
- Occupier demand for office and logistics space has seen a slight slowdown, but moderate vacancy and supply conditions prevail especially for high quality space and most notably in the industrial/logistics sector.
- Private real estate fund performance continued to diverge across the major regions according to ANREV/INREV/NCREIF, with Asia Pacific remaining in positive total returns territory at 0.3% over Q1 2023, whereas Europe and the US both posted negative performance of -1.0% and -3.0% respectively. These valuation-based movements continue to lag those observable for transaction pricing.
- Private real estate debt capital costs remain materially higher than in the first half of 2022 with margins for US commercial mortgages remaining stable and interest rates representing the majority of total costs for borrowers.
- Global private real estate fundraising has slowed dramatically during 2023 to date with Preqin registering $88.6billion of new capital raised through to the end of July compared to $188.4billion raised in 2022 and $224.4billion in 2021
You can download the full report at the link below.