Real estate investment in Q3 skews overall picture
In the third quarter of 2022, €3.8 billion was invested in commercial real estate, putting the level of investment on a par with the first two quarters of the year. A total of €11.2 billion in commercial real estate has exchanged hands over the past nine months. However, these relatively high figures skew the overall picture of the current state of the market. Real estate values have begun a marked decline and uncertainty among investors has increased sharply. With financing rates currently on the rise, the real estate market has reached a turning point. Based on the figures for the third quarter of 2022, these are the findings of CBRE Netherlands, part of the listed company CBRE Group, the world’s largest real estate consultancy.
The fourth quarter of 2022 looks set to show a decline in investment volume compared to the third quarter. This is a striking development, considering that the fourth quarter can usually be relied on to generate almost double the quarterly average of the first three quarters. In other words, Q4 normally accounts for a 39% share of the total annual volume. Forecasters are now expecting an investment volume of €14.5 billion for 2022 as a whole. Investment volume in the logistics real estate market is expected to remain by far the largest investment class, as was the case in 2021.
In the view of CBRE, a new price balance will become apparent on the investment market once inflation and the ECB’s policy response reach a new equilibrium.
A far less dynamic investment market
The sharp rise in interest rates since the beginning of this year has had a considerable impact on real estate prices. Price volatility has prompted uncertainty among investors. September normally ushers in a wave of higher investment that maintains momentum until the close of the year but in 2022 this dynamic will be very different. Given the sizeable gap between vendors’ asking prices and the offers being made by buyers, significantly fewer transactions will take place.
An exception is still being made for preferred properties that not only meet the most exacting ESG standards but also have a solid history of being well let. This includes buildings in use by the life sciences sector: a rapidly growing market where available real estate is in limited supply and many investment funds have been set up worldwide in recent years specifically to purchase property of this type.
In the residential investment market, CBRE has seen a sharp decline in investment activity since the announcement of rent control. Uncertainty about rent regulation is causing developers and investors to put projects on hold pending greater clarity on the policies to be introduced. This has contributed greatly to the fact that investment volume in the new construction market has almost halved relative to normal investment activity.
Now that the contours of rent regulation are beginning to emerge, CBRE is seeing investment activity pick up and projects being modified where necessary in an effort to limit or sidestep regulation. Yet the uncertainty surrounding one of the most popular residential segments remains, as 50 to 75 sq. m. homes may still be in line for regulation. Any regulation will seriously impact the profitability of projects in this segment and significantly delay the development process.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company with headquarters in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company employs more than 105,000 people worldwide and provides services in over 100 countries. CBRE offers strategic advice and guidance in real estate sales and leasing; corporate services; property, facilities and project management; appraisal and valuation; development services; investment management; and research and consulting. Please visit our websites at www.cbre.nl and www.cbre.com.