Global Commercial Investment Drops 51% Yearly in Q3

Global commercial investment saw a sharp 51% year-on-year decline in Q3, highlighting a significant slowdown in market activity. This downturn reflects a mix of economic factors, including rising interest rates and inflation, which have impacted investor confidence. The decline raises concerns about the future of commercial real estate and the broader global economy, with potential long-term effects on growth and stability.

Fueled by soaring interest rates and global economic instability, new data from CBRE reveals that global commercial real estate investment dropped by 51% year-over-year in Q3, reaching $142 billion. Investment declined by 53% in the Americas, 54% in Europe, and 31% in Asia-Pacific. Rising interest rates in various countries were a key factor behind this sharp decrease in investment activity.

Multifamily investment plummeted by 59% year-over-year to $37 billion, while industrial investment fell by 44% to $32 billion. Office investment dropped by 63% to $26 billion, driven by weak market fundamentals and a lack of liquidity. Retail investment decreased by 35% to $25 billion.

Interest Rates Weigh on Investment in the Americas

In the Americas, commercial real estate investment dropped 53% year-over-year in Q3, totaling $86 billion, mainly due to increasing interest rates, stricter lending conditions, and economic slowdown expectations.

CBRE notes that multifamily investment led the sector with $30 billion in Q3, a 61% decrease compared to the previous year. Multifamily investments are expected to stay somewhat resilient as higher mortgage rates encourage renting over homeownership. However, some markets face risks of overbuilding, and value-add properties may struggle to refinance next year.

Industrial investment decreased by 43% to $21 billion, but strong demand for industrial space, particularly from e-commerce companies, is expected to sustain investor interest in the near future.

Office investment saw a 63% drop to $12 billion. Credit availability for office acquisitions was the tightest among all sectors, and investors remain cautious about future demand. Some near-term investment activity is expected due to sellers accepting lower prices for Class B and C office assets in specific markets.

Retail investment fell by 31% to $16 billion. Despite resilient consumer spending this year, diminishing savings and resumed student loan payments are likely to reduce U.S. retail spending in the short term. However, limited new supply should mitigate any further decline in retail real estate fundamentals.

European Investment Volume Declines for Seventh Straight Quarter

CBRE reports that European commercial real estate investment fell by 54% year-over-year in Q3, totaling $36 billion, mainly due to higher interest rates and slower economic growth.

Office investment in Europe decreased by 66% to $9 billion. While return-to-office rates are higher than in the U.S., many European companies are reassessing their space needs, which has lowered demand for lower-quality office assets. Demand for prime office properties remains relatively strong.

Investment in European industrial assets dropped by 55% to $7 billion. E-commerce expansion slowed, slightly increasing the overall industrial vacancy rate. Nevertheless, industrial rent growth continued.

Retail investment in Europe fell by 52% to $6 billion. Although European consumers still have excess savings, inflation and slower economic growth are expected to reduce consumer confidence.

Multifamily investment in Europe decreased by 49% to $6 billion, marking the lowest quarterly investment total for the sector since 2013.

Asia-Pacific Investment Shows Resilience

Asia-Pacific (APAC) commercial real estate investment fell by 30% year-over-year in Q3, totaling $20 billion, driven largely by a rise in retail and hotel acquisitions.

APAC office investment decreased by 61% to $6 billion, the lowest quarterly total since 2011. Repricing of office assets is expected in the near term, especially in Pacific regions and Hong Kong.

Industrial investment in APAC fell by 9% to $4 billion, with long-term leases gaining preference over short-term agreements. Although industrial investment activity is predicted to remain subdued in Q4, core funds are likely to target markets with better rent growth prospects, like Australia and Singapore.

Retail investment in APAC dropped by 15% to $4 billion, with major asset acquisitions in Japan, Australia, and Singapore contributing to sector activity.

2024 Global Outlook

CBRE forecasts that high interest rates and tight credit conditions will continue to restrict commercial real estate investment through the first half of 2024. The firm predicts global commercial real estate investment next year will match 2023’s total, with a 5% decrease in the Americas, a 5% increase in Europe, and a 5%-10% increase in APAC.

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Source: Worldpropertyjournal‍