Global Real Estate Capital Flows H1 2023

• Cross-regional capital flows between North America, Europe and Asia-Pacific totaled US$30.5 billion in H1 2023, down by 52% from H1 2022.
• Elevated interest rates, softer real estate fundamentals and a mismatch in pricing expectations of buyers and sellers limited global investment.
• Cross-regional capital flow to Europe from the U.S. fell substantially in H1 2023, causing Europe’s total global cross-regional capital inflow to fall by 68% from H1 2022.
• Cross-regional investment in North America increased by 5% year-over-year, primarily driven by two large acquisitions by Asian investors.
• Industrial & logistics were the most sought-after assets globally due to their strong supply-and-demand dynamics. They accounted for 37% of all global cross-regional investment in H1 2023, the highest half-year share of any asset type on record.
• CBRE expects cross-regional investment volumes to remain subdued for the rest of 2023 before recovering in 2024.

Overview

Global cross-regional capital flows totaled US$30.5 billion in H1 2023, down by 52% from H1 2022 and the second consecutive half-year period with an approximate 50% decrease in volume. Much of this decline in cross-regional activity was due to less North American capital flow to Europe amid high interest rates, constrained debt markets and economic uncertainty. Europe saw inflows decline by two-thirds year-over-year, which is notable because the region is the largest recipient of cross-regional investment by a wide margin.

Cross-regional investment to North America increased by 5% year-over-year as Singaporean and Japanese investors made two major acquisitions and accounted for half of total cross-regional inflows to the region. Singapore-based GIC’s share of the $14 billion buyout of real estate investment trust STORE Capital in partnership with Chicago-based Oak Street Real Estate Capital boosted North American inflows in H1 2023, along with a large New York City office sector acquisition by Japanese investors.

Cross-regional capital inflows to Asia-Pacific (APAC) decreased by approximately one-third year-over-year. Investment was evenly distributed among industrial & logistics, multifamily and office assets. However, cross-regional investment in office assets fell by two-thirds year-over-year. Japan received relatively strong volume from North America due to favorable exchange rates, lower cost of finance and positive carry.

Industrial & logistics assets were the most targeted globally, accounting for 37% of all cross-regional investment volume in H1 2023—the highest half-year share on record. Tight supply-and-demand dynamics, especially in major cities, made this sector particularly attractive.

The retail sector accounted for approximately one-fifth of all cross-regional investment volume amid strong consumer fundamentals and limited new supply. Cross-regional investment in the office sector hit its lowest half-year amount since 2011, while inflows to the multifamily sector decreased substantially year-over-year to just under US$4.8 billion, although its share of total volume remained the same.

North America

Cross-regional capital inflows to North America totaled US$11.8 billion in H1 2023, up by 5% from H1 2022. Investment was fueled by a resurgence in APAC-originating capital, predominately from Singapore and, to a lesser extent, Japan. Two mega-deals in the U.S. accounted for the bulk of investment volume, including GIC’s contribution to the $14 billion buyout of STORE Capital REIT in partnership with Oak Street Real Estate Capital. Singaporean investors also heavily targeted logistics assets in Canada.

Industrial & logistics assets were the most targeted property type by cross-regional investors in H1 2023, attracting US$4.7 billion—the highest half-year total since 2015. Logistics assets have benefited from strong fundamentals and a macro-outlook conducive to supply chain growth. Retail assets were the second most targeted, attracting $US3.6 billion. Retail entered the repricing cycle at higher cap rates, making the asset class attractive compared with other sectors. The office sector saw its lowest half-year cross-regional investment volume since 2010 as uncertainty around future occupier demand continued.

New York, Los Angeles, Dallas, Miami and Charlotte were once again among the top 10 most sought-after markets by international investors. This is consistent with the findings of CBRE’s 2023 U.S. Investors Intentions Survey, indicating that investors have a clear preference for Sun Belt markets. New York remained the most sought-after destination for international investors with US$1.7 billion in volume , largely from a US$1 billion office acquisition by Japanese investors.

Canada registered US$2.2 billion in H1 cross-regional capital inflows, its highest half-year total ever. More than 90% of inflows to Canada—all from Singaporean investors—targeted industrial & logistics assets. Investment was mainly concentrated in Toronto, Montreal and Calgary, all of which saw increases of 100% or more in cross-regional volumes from their previous five-year averages.

Europe

Despite attractive foreign exchange rates for the euro, US$14.7 billion in cross-regional capital inflows to Europe was the lowest H1 total since 2010. The region, which typically receives approximately three-quarters of total global cross-regional investment, saw its market share drop to 48% in H1 2023. This was largely due to constrained debt markets and a paucity of transactions given pricing uncertainty.

Industrial & logistics assets attracted the most cross-border capital to Europe in H1, followed by multifamily assets. The European office market remained resilient in prime locations due to a strong return to office and tight supply-and-demand dynamics.

The U.K., Germany, France and Spain remained the most sought-after countries given their strong fundamentals. The U.K. led the region with US$7.8 billion in H1 cross-regional investment with London, Manchester, Bristol and Edinburg being the most targeted cities. In continental Europe, the logistics hubs of Rotterdam and Helsinki also attracted substantial capital flow.

Asia-Pacific

H1 2023 cross-regional capital inflows to APAC totaled US$4.1 billion, down by 33% year-over-year. Investment in the region was limited by slower yield expansion amid the current interest rate hiking cycle. Only certain property funds with investment mandates and corporations with an already established presence in APAC were active in the region’s investment market.

Although accounting for 94% of total H1 2023 cross-regional capital inflow to APAC, investment by North American investors was 29% lower than its five-year average due to economic uncertainty at home. Mainland China’s weaker-than-expected macro-economic outlook and geopolitical tension have caused investors to favor other APAC markets. North American-domiciled investors showed a strong preference for office and multifamily investments in Japan and industrial & logistics assets in Korea. Meanwhile, a French fund manager purchased a 33-asset multifamily portfolio across Japan.

Return-to-office rates are generally higher in APAC than in North America and Europe, which has made the region’s office market more attractive for foreign investors. Industrial & logistics assets also remained attractive given strong fundamentals, while the multifamily sector continued to mature across the region.

Cross-regional inflows by region

Source: CBRE Research 2023, MSCI Real Assets.

Cross-regional outflows by region

Source: CBRE Research 2023, MSCI Real Assets.

Cross-regional inflows by market

Source: CBRE Research 2023, MSCI Real Assets.

Cross-regional outflows by market

Source: CBRE Research 2023, MSCI Real Assets.

Industrial & Logistics

Industrial & logistics was the most sought-after property type by global investors in H1 2023, attracting US$10.8 billion in cross-regional capital for a 37% share of total cross-regional volume. Of the US$4.8 billion invested in North American industrial & logistics assets, US$3.3 billion came from Singaporean investors.

Investment in European logistics decreased by 64% to US$4.7 billion as investment originating from North America remained limited. Cross-border investment was primarily concentrated in the U.K., where there is a concerted effort to develop both domestic and international supply chains.

Investment in APAC industrial & logistics assets increased incrementally year-over-over to US$1.3 billion—the second highest H1 total on record. Canadian investors closed a $500 million mega deal in South Korea, while U.K investors placed US$256 million in a Japan regional market. Overall, the number of transactions in the region was limited.

Retail

Retail was the only sector with a year-over-year increase in H1 cross-regional investment volume, up by 20% to US$5.8 billion. The increase was largely due to a boost in North America inflows from Singapore-based GIC’s share of the $14 billion buyout of STORE Capital REIT in partnership with Chicago-based Oak Street Real Estate Capital. Cross-regional capital inflow to the Europe and APAC retail sectors was at US$1.9 billion and US$104 million, respectively.

Retail entered this cycle with relatively high cap rates; therefore, future cap rate expansion is expected to be less than other sectors. As a result, global investors are starting to find retail assets particularly attractive. Cross-regional investment targeting the sector could surpass pre-pandemic levels in the near to medium term given these market conditions.

Multifamily

H1 2023 cross-regional inflows to the multifamily sector decreased by 40% year-year-year to US$4.8 billion. North America and Europe saw the bulk of declines as volumes decreased by approximately two-thirds and one-half in each region, respectively. In terms of global market share, multifamily accounted for 17% of total H1 2023 cross-regional investment volume.

Multifamily continues to command strong investor interest due to high demand given the affordability issues of the single-family housing market. Strong fundamentals are expected to continue as increased household formation boosts demand and high interest rates slow new development.

Office

Cross-regional investment in the office sector totaled US$5.3 billion in H1 2023, an 80% decrease year-over-year. Europe accounted for most of this decline, attracting only US$2.7 billion compared with US$20 billion in H1 2022. This decline is largely due to a more uncertain investment environment, tighter financial conditions and concerns over waning demand for secondary office space. However, office fundamentals in major European cities remain strong, especially in the prime segment of the market. Return-to-office rates in Europe have been higher than in the U.S. and quality space remains at a premium.

Cross regional investment in the North American office sector was limited in H1, totaling only US$1.6 billion compared with more than twice that in H1 2022. One large acquisition in New York City by Japanese investors accounted for approximately two-thirds of total cross-border capital inflow to the North American office sector.

H1 2023 cross-regional capital inflow to the APAC office sector fell by 69% year-over-year to US$1 billion—the biggest reduction of any region—largely due to insufficient price adjustments to meet buyers’ expectations. However, the APAC office sector has remained attractive to domestic investors, with the strongest return-to-office rate of all global regions.

Cross-regional inflows by sector

Source: CBRE Research 2023, MSCI Real Assets.
Note: APAC Multifamily data collection began in 2023.

Cross-regional outflows by sector

Source: CBRE Research 2023, MSCI Real Assets.

Sector market share inflows

Source: CBRE Research 2023, MSCI Real Assets.

Sector market share outflows

Source: CBRE Research 2023, MSCI Real Assets.

Global investors likely will remain cautious for the rest of this year due to high interest rates and economic uncertainty. Nevertheless, it appears that inflation has peaked globally and central banks are either at or near the end of their rate-hiking cycles. Therefore, we expect the global investment market to begin recovering in the first half of 2024.