Global Investment Capital Is Back With Implications

The 2022 Global Investor Outlook Report from Colliers says that capital is back to invest in real estate on a global basis. But in doing so, there’s a set of key trends that roughly offer a path of considerations when making investment decisions.

The first is investing with intent. As the report explains, “We expect environmental attributes and asset performance to drive market turnover as investors recalibrate their assets under management. Three quarters of investors surveyed globally are taking action, with at least 25% in advanced planning stages on whether to hold or dispose of assets. Social trends point to affordable housing as a significant growth opportunity globally when expertly managed.”

“Investing with intent will drive capital to certain markets and to certain assets,” Aaron Jodka, director of research US capital markets at Colliers, tells GlobeSt.com. “That could be new in terms of construction, it could be locational, and we expect things particularly on the office side to be a race to core. You want to be located in top tier cities with quality-built assets and long-term performance. 

Next is the race to core assets “as investors upgrade and future-proof their portfolios,” according to the study.

“You have an unprecedented amount of capital to be deployed,” Jodka says. “Depending on how that is deployed can have a massive impact on capital flows and trends. Generally speaking, we’ve seen class A outperform class B on the fundamentals in terms of rents and vacancies and values. Ultimately, the value is the rents and expenses that turn into the cash flow.”

As investors look at intent and core assets, in addition to the amount of capital available, they have to reconsider how low they can go in transactions, with the potential for being outbid always there. Portrait recalibration will drive investors to sell off “non-conforming assets” before being forced into distressed sales. 

“We’ve never seen faster price appreciation here in the US as we have in recent quarters,” Jodka says. “And we’re really seeing that concentrate in industrial, multifamily, and select office, with life science adding in there as well. What happens is you see investors migrating capital to different locations and different assets in order to chase yield and find returns.”

The big constraint on values, pricing, and investing is rising materials and labor prices along with falling availability. “If it’s too expensive to build, it supports rent growth,” says Jodka. “If it costs me Y dollars to build and that means I need Y collars in rent and the market doesn’t justify Y rent, I can’t build that building.” That pushes up demand for existing buildings, driving values and rents upward.

Perhaps the most curious aspect is the likely need for joint ventures to gain expertise in unfamiliar property types when, globally, not even 30% of companies deploy capital in that way.

“When you get into some of these specialized areas, that takes a different level of expertise and understanding of the nuances of space,” according to Jodka. “Sometimes you can make an office building into a lab building. Sometimes you can’t. Sometimes it comes down to tax strategy, overall structure of a fund, or mandates.”