It is safe to say that for commercial real estate, 2023 was not what we envisaged, or indeed hoped for, at the beginning of the year.
This is despite a relatively positive economic backdrop, with inflation following the path of least resistance, and strong labour market outcomes bringing the elusive ‘soft landing’ into focus.
Welcome
Taking Stock 2024
Introduction
Full Report
Savills 2024
Back to the top
Summary
A review of Global Real Estate Capital Markets
At this point last year, we expected activity to bottomout around mid-year, with a recovery taking hold inthe second half. But the recovery failed to materialise,as economic resilience gave rise to ‘higher for longer’ interest rates, extending a period of wait-and-see inreal estate capital markets.
As we look ahead to the rest of 2024, we are optimistic that pricing will bottom out around mid-year, with a recovery taking hold in the second half. At this point, you may have a sense of déjà vu. However, while not wanting to succumb to the ‘this time is different’ syndrome, there are good reasons to believe that this time is different.
The current downturn remains predominantly interestrate driven; this cycle is somewhat unique in so far as fundamentals have on the whole, remained relatively robust. So, it stands to follow that as rates come down, values will stabilise, and investors will return to the market.
Last year we wrote of risk and opportunity being two sides of the same coin. This year, investors are potentially facing a biased coin in favour of opportunity.
Within this report, we make a number of references to transactional turnover in some markets falling to levelsnot seen since 2009. Looking back at previous periodsof stress to find learnings for today can be misguided, however, one observation we feel is highly pertinent is that when we emerged from the depths of the Global Financial Crisis, we were experiencing a true dearth of both equity and debt in real estate markets, particularly in the West. Despite this, the speed of recovery was dramatic.
Today, when we look at the sheer number of investors,the quantum of investable capital, and how globalisedreal estate markets are now compared with 2009,it feels like the nature and shape of the recovery willbe quite different.
Summary
Global
United States
UK and Europe
Asia Pacific
Interest rates remain key to the outlook for capital markets this year. Volatility is likely to persist in the short term, as the timing and pace of the policy pivot comes into focus, with downside risks still weighing on the global economy. However, we anticipate that dealmaking should recover momentum through the year in line with the wider economic outlook. This will be supported by greater price discovery as motivated sellers bring more stock to the market, with ‘FOMO’ (the ‘fear of missing out’) increasing the pool of active buyers, looking to time the bottom.
US$900bn
3.1%
The amount of debt due to mature across Australia, France, Germany, UK, and the US in 2024, with refinancing events expected to lead to more motivated sellers this year.
The IMF forecast for global growth in 2024, the same as 2023, taken from their January World Economic Outlook entitled ‘Moderating inflation and steady growth open path to soft landing’.
US$722bn
45%
Global investment in commercial real estate in 2023 was the lowest in more than a decade.
The market share of private buyers in 2023, up from a pre-Covid average of 31%, as smaller, typically cash-rich buyers benefitted from reduced competition from larger institutions.
“There is a renewed sense of optimism in commercial real estate markets, underpinned by more than the simple exuberance that often accompanies a new year. The current cycle remains predominantly interest rate driven, with fundamentals showing resilience in line with the wider economic environment. The timing and scale of the policy pivot will therefore provide the catalyst for a pick-up in capital markets activity.”
oliver salmon
Director, World Research, Global Capital Markets
Oliver Salmon
Director, World ResearchGlobal Capital Markets
Rasheed Hassan
Head of Global Cross Border InvestmentGlobal Capital Markets
Click here to download the full report
Click here to download the full report
Global
Executive Vice President, Capital Markets Group
DAVID HELLER
“With interest rates falling and the post-covid reality well-known we believe this year will finally bring visibility to long-term capital values for office and increased liquidity. Lenders will continue to take a commercial approach with respect to restructurings and financings and re-financings which will lead to a corresponding uptick in transaction volumes. For the multifamily sector specifically, continued strong fundamentals resulting from a resilient economy should provide investors with confidence to take a long-term view. Similarly for industrial & logistics, while perhaps some of the enthusiasm has levelled off, there remains significant interest in the asset class as investors play both offense and defense.”
Rental growth in the industrial & logistics sector since 2019, helping to offset the impact of yield expansion on capital values.
64%
Share of office sector in total investment, down from around 30% a decade ago.
14%
The amount of debt set to mature by 2027, according to MSCI, with refinancing events expected to bring more motivated sales to the market.
US$2tn
Total investment declined by 50% in 2023.
US$371bn
The US CRE market has an image problem. The image is of an aging, poorly located office tower that is largely empty, owned by a highly leveraged investor who needs to refinance. A looming debt maturity wall and concerns over the health of many regional banks cloud the horizon. But a recovery should take hold as we move through this year, underpinned by the other core sectors, particularly industrial & logistics, where current pricing is increasingly attractive amidst falling borrowing costs.
Head of UK and European Commercial Research
mat oakley
“With both the European Central Bank and Monetary Policy Committee likely to cut rates this year, we expect that 2024 will be the year that prime commercial property prices start to rise again in the UK and Europe. The largest and fastest rises will be in sectors where there is a solid occupational story and a degree of over-correction in yields during the Covid period. For opportunistic investors 2024 and 2025 will be the best opportunity to capture a bounce that we have not seen in over a decade.”
Growth in prime office rents in 2023.
4.3%
Expected recovery in investment turnover in 2024.
20%
Decline in capital inflows from non-European based investors.
62%
Total investment turnover in 2023, down 48% on the previous year, and the lowest since 2009.
US$167bn
European capital markets were oversold last year, as cross border investors pulled back from the region. Risk appetite should improve through 2024, supporting a recovery in investment activity and return of long-haul capital. The office sector is dealing with the collateral damage from the US market, despite a very different occupational backdrop. This could hold back aggregate investment activity despite continued strong interest in industrial & logistics and living sectors.
Regional Head of Research & Consultancy, Asia Pacific
simon smith
“Asia Pacific’s investment markets proved resilient last year relative to their peers in Europe and the US. 2024 should see a modest recovery from 2023 lows, buoyed by intra-regional cross border capital flows. Favoured destinations will include Japan, South Korea, Australia, and India while multifamily, logistics and hotel assets will remain sought after. More niche asset classes including student accommodation, senior housing and data centers are all likely to attract more institutional interest.”
Offshore investors continue to pivot towards the nascent Indian market, with private equity inflows rising by nearly 15% last year.
15%
The majority of regional institutional investors responding to the 2023 Real Estate Allocations Monitor are planning to increase their target allocations in 2024, compared to less than 20% in other regions.
70%
Asia Pacific investors underpinned the large majority of investment turnover, with long haul capital pulling back from the region over the last 12 months.
91%
Investment was relatively resilient to global headwinds in 2023, falling by just 28% in comparison with the previous year.
US$145bn
A recovery in CRE investment activity is expected this year, albeit that resilience through the last 12 months will imply only modest growth in comparison with the other global regions. Japan will again be at the forefront of any recovery, followed by those markets where interest rate pressures have been most acute. The recovery in China will lag the rest of the region, weighing on the regional aggregate, given issues around the indebted property sector and wider economic slowdown.
Asia Pacific
UK and Europe
United States
Why Savills?
How we work
What we do