Schroders Capital Global Real Estate Lens July 2023: your go-to guide to global property markets

We are pleased to provide you with the July edition of our monthly Global Real Estate Lens summarising 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. Especially in light of recent events in the banking sector and the risk of this triggering broader contagion effects. Fringe markets and secondary assets remain most susceptible to anticipated declines. The tragic conflict in Ukraine continues. Material inflation - and the interest rate rises enacted to control it - have been seen across the globe, signaling a regime shift in macroeconomic and monetary policy.

July’s Lens highlights the following:

• Schroders continues to see high inflation across a wide set of markets, even if energy prices have declined from their peak levels and global supply chain pressures have eased after Covid restrictions.
• To counter prevailing high inflation, monetary policy has become more restrictive in most major markets, which is slowly forcing real global growth lower during 2023 and into 2024
• US office markets have received significant negative press attention and the office fundamentals are indeed relatively weak compared to those of Asia Pacific and Europe.
• In addition, US debt levels have seen a 55% increase from post Global Financial Crisis (GFC) levels. 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. Less contagion and distress is expected in these markets
• Tight vacancy and supply conditions prevail, most notably in the industrial/logistics sector, where solid occupier demand remains
• Private real estate fund performance continued to diverge across the major regions according to the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV), the European Association for Investors in Non-Listed Real Estate (INREV), and the National Council of Real Estate Investment Fiduciaries (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 a $71.4 billion of new capital raised through June compared to $183.1 billion raised in 2022 and $217.2 billion in 2021

You can download the full report here.