Global Real Estate Perspective August 2022

Markets holding up well but headwinds starting to impact sentiment and activity

While effects from the pandemic have receded in most parts of the world other headwinds have appeared and strengthened in the second quarter. Inflation accelerated sharply for a number of reasons including the war in Ukraine, sanctions against Russia, Covid restrictions in China and ongoing supply chain disruptions. This triggered an accelerated tightening cycle by central banks. These are all feeding into heightened uncertainty and are dampening sentiment. Decision-making processes are lengthening as occupiers take a ‘wait and see’ approach. On a positive note, labor markets are continuing to perform strongly and pent-up demand from the pandemic is still helping to support activity. For investors, the increasing cost of debt and inflation are impacting pricing and bidding dynamics around the world.

Global office leasing volumes held stable over the quarter, but this bucks the pre-pandemic trend where the second quarter would usually show an increase on Q1. Additionally, while global net absorption remained positive in Q2 it was down 89% over the quarter. In the logistics sector demand remained strong and is becoming more broad-based as ecommerce occupiers play a less dominant role in the market. Leasing activity in the retail sector was robust across many mature markets despite a weakening sales outlook and rising costs.

Global Real Estate Health Monitor

Ongoing capital markets momentum but risks increasing

Diminishing operational uncertainty, robust demand and abundant liquidity spurred a flurry of activity and allowed Q1 2022 to be the most active first quarter on record – at US$292 billion. All three regions posted healthy gains in transaction activity. The composition of capital is diverse and evolving, supporting strong liquidity and healthy bidder pools. Cross-border acquisitions held to historic norms at the start of 2022. And, private investors represented more than 43% of volumes – a record share of activity. Despite the robust investment market conditions during Q1, the markets face renewed headwinds as a result of elevated inflation, geopolitics and rising interest rates.

The recovery of physical office occupancy and leasing, robust consumer spending and rebounding leisure and business travel has broadened the appetite of investors across sectors. Investors remain focused on portfolio diversification and are aligning investment strategies to longer-term economic and demographic shifts, benefitting logistics, living and healthcare assets.

Global Real Estate Health Monitor

Investors in a new phase of price discovery

The impact of the economic climate and rising rates is being felt globally at mid-year in the capital markets, reflected in investor selectivity and the slowing pace of growth in the direct investment markets. During this new phase of price discovery, the bid-ask gap is widening in the transaction market, and bidding intensity is moderating. With that said, the tailwinds supporting the real estate asset class remain intact, and there is no lack of equity or debt market liquidity. Debt markets are liquid, but more cautious amid increased scrutiny on underwriting assumptions. Looking ahead, incremental rate changes will introduce additional price discovery in the markets. However, the continued depth and diversity of lenders and investors is expected to mitigate the risk of a deeper, prolonged impact on capital flows in real estate.

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Carol Hodgson
Global Research Director, Property Sectors
Sean Coghlan
Global Head of Research, Capital Markets
Matthew McAuley
Director, Global Insight
Shawn Lambert
Manager, Capital Markets Research & Strategy
Benjamin Breslau
Global Chief Research Officer
Julia Georgules
Head of Americas Research & Strategy
Tom Carroll
Head of EMEA Research and Strategy, JLL
Roddy Allan
Chief Research Officer, Asia Pacific