2022 was a year of many unforeseen events – from geopolitical upheaval leading to slowing economies around the world, to surging inflation and rising interest rates – all marking the end of the property cycle.
The latter part of 2022 was more challenging, and uncertainty will continue into 2023 until the macro-economic picture becomes clearer.
Supply-chain pressures and high energy prices that have seen decades-high inflation levels and a generational squeeze on household incomes will begin to ease and inflation will fall back, perhaps enough to prompt policy rates to stabilise in the latter half of the year, but progress will no doubt be slow. Major world economies will also slow but the fall in growth is expected to be more modest than perhaps thought even only a few months ago. Crucial elements to watch for are how deep any recessions are and how quickly economies rebound.
Higher interest rates will be a key driver of the reset of real estate markets in 2023 after a prolonged period of ultra-loose monetary policy. The more expensive financing will see yields soften and a value correction across all sectors. Even as markets slow and benchmark pricing finds a new norm, opportunities will remain in real estate across the world.
Some opportunities will be on a shorter horizon and play to equity investors and the window of opportunity is expected to be narrow. Others will be on a longer-term horizon as long-term cyclical trends are favourable to high quality centrally located stock as hybrid working becomes the norm; logistics, particularly in undersupplied markets dominated by lower grade stock; and urban logistics, as consumers demand ever shorter deliver times. There is also a need to address residential, a chronically undersupplied sector that also provides a level of inflationary hedge. In parallel we are seeing an accelerated shift to more energy efficient buildings and ESG (environmental, social and governance) really coming to the fore. 2023 will be nothing if not interesting.
Interested in learning more?
Where next for real estate? With sections on the UK, Continental European and US real estate our team take a closer look at the economic backdrop, activity in 2022, the outlook for 2023 plus strategy calls across various sub-sectors. Download the full Real Estate Outlook to discover more.
