Positive start to the year although headwinds have emerged
Global real estate markets had a remarkably positive start to the year, with an ongoing recovery in occupier market take-up, and capital market investment volumes setting a new high in Q1. Effects from the pandemic are now waning (except in China), but other headwinds have emerged including high and rising inflation, tightening monetary policy, and mounting geopolitical risk created by the war in Ukraine. There had been minimal impact on overall global market activity during the first quarter, though sentiment has shifted in recent weeks. Ongoing strength is anticipated throughout the rest of 2022, but risks have increased, and a degree of caution is now needed.
Quarterly office leasing volumes continued to improve, increasing by 35% compared to Q1 2021; however, all regions are still lagging pre-pandemic volumes (Q1 2019). Supply-demand imbalance continues to be a key theme in major logistics markets across the globe, supporting robust rental growth. Retail spending and an increase in travel is helping to support a recovery in the retail and hotels markets although it remains market and sub-sector specific.
Ongoing capital markets momentum but risks increasing
Diminishing operational uncertainty, robust demand and abundant liquidity spurred a flurry of activity and allowed Q1 2022 to be the most active first quarter on record – at US$292 billion. All three regions posted healthy gains in transaction activity. The composition of capital is diverse and evolving, supporting strong liquidity and healthy bidder pools. Cross-border acquisitions held to historic norms at the start of 2022. And, private investors represented more than 43% of volumes – a record share of activity. Despite the robust investment market conditions during Q1, the markets face renewed headwinds as a result of elevated inflation, geopolitics and rising interest rates.
The recovery of physical office occupancy and leasing, robust consumer spending and rebounding leisure and business travel has broadened the appetite of investors across sectors. Investors remain focused on portfolio diversification and are aligning investment strategies to longer-term economic and demographic shifts, benefitting logistics, living and healthcare assets.