Global Investor Outlook: Will 2023 Bring Stabilization?

Although Colliers’ third annual Global Investor Outlook report doesn’t mince words about commercial real estate’s challenges, “after a volatile year of geopolitical tensions, economic shocks and uneven monetary policy,” the report forecasts stabilization ahead and opportunity still at hand. But one top theme stands out in the survey: the cost of capital, with 78% of respondents in the Americas painting a negative picture, and 68% voicing concern over the availability of debt.

“This is creating an opportunity for equity players to fill a debt void,” says Colliers’ director of research, U.S. Capital Markets, Aaron Jodka. He notes that investors are preparing for interest rates to have a negative impact in 2023, and are responding by moving to preferred equity and mezzanine debt strategies, with some debt strategies providing equity-like returns.

ESG Gaining Momentum

Driven by a flight to quality and occupier demands to balance out asset operational costs longer-term, investors are placing a growing emphasis on environmental, social and governance (ESG) criteria and ratings.

“One of the biggest changes in our report findings is the increase in investors having an established capital program in place, in which they have disposal and acquisition strategies to meet environmental asset performance targets,” says Jodka.

Globally, he notes that about a quarter of survey participants have five-year plans to redirect between 10% and 50% of their portfolio to meet an ESG investment strategy.

Prime Targets

Multifamily has overtaken industrial as the top asset class preference in the Americas, according to the Colliers report. This may not surprise many as the rental housing sector has remained a favorite among investors for years and continues to benefit from higher interest rates preventing more renters from becoming homebuyers.

“Multifamily investors are drawn to core urban and development,” Jodka says. “Investors are seeking safety in today’s market. Core investors are looking for opportunities across asset classes, where recapitalization opportunities will also present themselves. Redevelopment, conversion and repositioning plays are on investors’ minds for 2023.”

Office investors are targeting ESG-compliant assets in CBDs, and industrial investors prize ‘Last Mile’ distribution facilities. Grocery-anchored centers continue to lead the way in the retail sector, and luxury properties are ranked first among hotel investors. Similar to Colliers’ 2022 global survey, life sciences, data centers and student housing ranked as the top three alternative asset classes.

“These demographically driven and infrastructure-driven asset classes are intriguing opportunities for investors,” Jodka says. “This also opens up a variety of markets to target, as they will differ across these three alternative asset classes.”

U.S. investors, who are less concerned with deglobalization and demographic pressure than their international counterparts, have been increasing asset allocations to growth markets in recent years.

“Markets in the Sunbelt from the Southeast to Southwest have been investment darlings,” Jodka says. “Stronger demographic trends and newer inventory have been attractive to investors.”

Prosperous or Just Stable New Year?

Colliers expects the process of stabilization for the global real estate market to take hold by mid-2023. While investors are concerned about the cost of capital, inflation, cybersecurity and the supply of labor, many can expect a more steady, balanced CRE environment. Colliers does note: “Investors can expect big differences in how the reset plays out across sectors and markets next year.”