CBRE recently released data showing that global commercial real estate investment fell 51% year-over-year during Q3 to $142 billion, as an unprecedented 53% annual decline was caused by surging interest rates and global economic uncertainties. Americas investments fell by 53%; 54% in Europe; and 31% across Asia-Pacific regions. These dramatic numbers can be attributed to rising interest rates that in many instances contributed to an absence of activity among many markets.
Multifamily investment volume dropped 59% year-over-year in Q3 2015, to $37 billion, while industrial investments saw their investment decline 44% year-on-year to $32 billion. Office investments experienced even further decline of 63% to $26 billion as their fundamentals and liquidity became significantly weaker, and retail investments declined 35%, coming to $25 billion.
Rising Interest Rates Halt Investment in the Americas
Americas commercial real estate investment volume declined 53% year-on-year to $86 billion during Q3, due mainly to increased interest rates, tighter lending standards, and concerns over an economic slowdown.
CBRE reports multifamily investment volume was the top in all sectors in Q3, with $30 billion, down 61% year-on-year. Although multifamily investments may remain somewhat resilient due to rising mortgage rates favoring renting over buying, certain markets are at risk of overbuilding while value-add properties could have difficulty refinancing next year.
Industrial investments fell 43% year-on-year to $21 billion, yet strong demand from e-commerce operations for industrial space should bolster investor enthusiasm over time.
Office investments were down 63% year-on-year to $12 billion in Q3, year over year. Credit availability for acquisitions in this sector remained scarce and investors were concerned over future occupier demand. Sellers accepting lower prices for Class B and C office assets will drive some short-term investment activity.
Retail investment fell 31% year-over-year to $16 billion. Consumer spending has proven remarkably resilient this year; however, declining savings and student loan repayment obligations could pose challenges to retail spending in the short term. A lack of new supply could reduce any further declines in retail real estate fundamentals.
European Investment Volume Declines in Seven Consecutive Quarters
CBRE reports that commercial real estate investment in Europe declined 54% year-on-year in Q3, reaching $36 billion, due to higher interest rates and slower economic growth.
Office investments in Europe declined 66% year-on-year in Q3, totalling $9 billion. While European firms experienced higher return-on-office rates compared with their American counterparts, many European companies are currently reevaluating their space needs, leading to decreased demand for lower quality office assets whereas prime properties still held strong demand.
Investment in European industrial assets was down 55% year-on-year at $7 billion, while overall industrial vacancy increased slightly as growth among e-commerce companies slowed. Yet average industrial rent continued its upward trajectory.
European retail investment fell 52% year-on-year to $6 billion during Q3, although consumers still hold excess savings. Persistent inflation and slower economic growth may diminish consumer trust further.
Multifamily investment across Europe declined 49% year-on-year in Q3 2014 to $6 billion – its lowest quarterly total since 2013.
Asia-Pacific Investment Remains Resilient
Asia-Pacific (APAC) investment volume decreased year-on-year in Q3, falling 30% year to date to $20 billion, driven largely by increases in retail and hotel acquisitions, according to CBRE.
Q3 office investments fell 61% year-over-year to $6 billion, their lowest quarterly total since 2011. Further repricing is likely in the Pacific and Hong Kong regions in the near future.
APAC industrial investment fell 9% year-on-year in Q3, to $4 billion. Longer leases began to outweigh short-term leases across the region and industrial investment activity is likely to remain somewhat subdued in Q4, though core funds will continue to focus on markets with strong rental growth prospects such as Australia and Singapore.
Retail investment across APAC decreased by 15% year-on-year in Q3 to $4 billion, due to large asset purchases occurring mainly in Japan, Australia and Singapore.
2024 Global Forecast CBRE predicts that high interest rates and tight credit conditions will limit commercial real estate investment activity through the first half of 2024. They project that total global commercial real estate investment volume will match 2023’s level with America showing an expected decrease, Europe showing growth while APAC experiencing between 5-to-10% expansion.