Intelligent Investment

Global Investment Activity Stays Subdued in Q4; Recovery Expected in H2 2024

February 13, 2024 3 Minute Read

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Executive Summary

  • Global commercial real estate investment volume fell by 37% year-over-year in Q4 2023 to US$157 billion. 2023 annual volume fell by 47% year-over-year to US$647 billion.
  • Investment volume fell across all regions year-over-year in Q4: by 42% in the Americas, 24% in Europe and 37% in Asia-Pacific. For the year, volume fell by 50% in the Americas, 46% in Europe and 29% in Asia-Pacific.
  • All commercial real estate sectors recorded year-over-year Q4 and annual declines in volume.
  • High interest rates, tight credit conditions and a global economic slowdown will inhibit real estate investment activity in the first half of the year.
  • If central banks begin cutting interest rates as we expect in Q2 and financial market volatility eases, investment activity should begin to recover in the second half of this year.
  • CBRE forecasts that global investment volume will increase by 7% in 2024, with volumes up by 5% in the Americas, 10% in Europe and 5% to 10% in Asia-Pacific.

Figure 1: Global Commercial Real Estate Investment Volume (US$ Billions Floating)

Source: CBRE Research, MSCI Real Assets, Q4 2023.

Elevated Interest Rates Continue to Weaken Investment in the Americas

Americas commercial real estate investment volume fell by 42% year-over-year in Q4 to US$86 billion and by 50% on an annual basis to US$375 billion. Although the 10-Year Treasury yield fell by 1 percentage point over the course of Q4, relatively high borrowing rates and uncertain economic and business conditions slowed investment activity.

Multifamily investment fell by 54% year-over-year in Q4 to US$27 billion and by 60% for the year to US$122 billion. Multifamily remained the most preferred sector for investors and lenders in Q4, but a wave of new supply will be a drag on net operating income this year, particularly in Sun Belt markets.

Industrial investment fell by 43% year-over-year in Q4 to US$22 billion and by 40% on annual basis to US$100 billion. Industrial remained an attractive sector for investors due to strong fundamentals. We expect more sellers this year given liquidity in the sector and increased redemption requests of real estate funds.

Office investment declined by 33% year-over-year in Q4 to US$14 billion and by 56% for the year to $55 billion. Sales will likely increase in 2024 as seller capitulation accelerates and assets are priced at less than their outstanding loan amounts.

Retail investment fell by 28% year-over-year in Q4 to US$13 billion in Q4 and by 37% on an annual basis to $61 billion. The sector continues to benefit from a dearth of new supply, as well as resilient consumer spending.

Figure 2: Property Sector Share of Global Investment Volume

Source: CBRE Research, MSCI Real Asets, Q4 2023.

European Investment Sluggish Amid High Interest Rates, Economic Weakness

European investment volume fell by 24% year-over-year in Q4 to US$50 billion and by 46% for the year to US$178 billion. High interest rates and slowing economic growth weakened investment in the region, as several countries fell into a technical recession.

Office investment in Europe decreased 41% year-over-year in Q4 to US$11 billion and by 60% on an annual basis to US$41 billion. While office attendance has been stronger in Europe than in the U.S., occupiers are still reevaluating their space needs. While this has put pressure on secondary office assets, demand for prime assets remains strong.

Industrial investment increased by 4% year-over-year in Q4 to US$10 billion but fell by 42% for the year to US$36 billion. Industrial sector fundamentals remain generally strong, despite less occupier demand. Investor demand for industrial assets is expected to remain healthy.

European retail investment declined by 36% year-over-year in Q4 to US$6 billion and by 40% on an annual basis to US$28 billion. Slower economic growth and high inflation continued to weigh on consumers and retail fundamentals.

Residential investment fell by 33% year-over-year in Q4 and by 45% for the year to US$36 billion.

Asia-Pacific Has Smallest Annual Decline in Investment

Asia-Pacific investment volume decreased by 32% year-over-year in Q4 to US$22 billion and by 29% on an annual basis to US$94 billion.

Office investment fell by 53% year-over-year in Q4 to US$9 billion and by 46% for the year to US$37 billion. Strong rent growth prospects for core office assets in Korea continued to attract investors. Noteworthy US$100 million-plus acquisitions of value-add assets occurred in Australia and Singapore. Core assets remained investors’ preferred target, but interest in value-add office assets is expected to increase this year.

Industrial investment fell by 28% year-over-year in Q4 to US$5 billion and by 11% on an annual basis to US$22 billion. Tight vacancy and stable rental income prospects kept investors interested in the sector.

Retail investment fell by 11% year-over-year in Q4 to US$3 billion and by 9% for the year to US$16 billion. Interest in the sector waned, as consumer sentiment softened due to sluggish economic growth. Interest in retail assets likely will remain muted until high interest rates and inflation come down.

Global Forecast

High interest rates and financial market volatility will keep investment activity subdued in the first half of 2024. We expect that central banks will begin cutting interest rates in Q2, which will help ease borrowing rates and financial market volatility. This will lead to a recovery in commercial real estate investment activity during the second half of the year. CBRE expects global investment volume to increase by 7% for the year, with increases of 5% in the Americas, 10% in Europe and 5% to 10% in Asia-Pacific.

Figure 3: Global Investment Volume by Sector (US$ Billions Floating )

Source: CBRE Research, MSCI Real Assets Q4 2023.