Global uncertainty about the state of the world economy precipitated a 52% plunge in cross-regional CRE capital flows in H1 2023 compared to the prior year. The total — $30.5 billion – marked the second consecutive half-year period where the world experienced an approximately 50% slump in investment levels.
This is the key finding of CBRE’s global real estate capital flows report for H1 2023.
And while North America managed to eke out a 5% increase in foreign capital inflows in the first half, that was largely due to two individual transactions from Asian investors, which totaled almost half the inflow.
One was the $15 billion acquisition by GIC, a Singapore sovereign wealth fund, in partnership with Chicago-based Oak Street, of STORE Capital completed in February. The second was “a large New York City office sector acquisition by Japanese investors” that was likely the sale by SL Green of a 49.9% stake in Manhattan’s 245 Park Avenue to Japan’s Mori Trust for $2 billion.
Total inflows into North America came to $1.81 billion from Europe, 0.71 billion from the Middle East, 0.02 billion from South America, and $9.2 billion from the Asia-Pacific region. Together they attracted $11.75 billion in H1 2023 compared to $11.21 billion in H1 2022.
Foreign investors focused heavily on industrial and logistics assets in the U.S., “benefiting from strong fundamentals and a macro-outlook conducive to supply chain growth.” Retail came in second, attracting $3.6 billion in foreign investment. “Retail entered the repricing cycle at higher cap rates, making the asset class attractive compared with other sectors,” CBRE commented. However, office saw the lowest foreign investment volume since 2010 amid uncertainty about future demand.
The top North American destinations of foreign capital were New York, Los Angeles, Toronto, Miami/South Florida and Montreal. Others in the top 10 were Dallas and Charlotte.
Investments from Singapore constituted more than 90% of the US $2.2 billion inflow to Canada, mainly targeting industrial and logistics assets, CBRE noted. Toronto, Montreal and Calgary each saw increases of 100% or more in foreign investment compared to their five-year averages.
In contrast, capital flows to Europe slipped to just $14.7 billion. Indeed, cross-regional capital inflow to Europe was the lowest in the first half since 2010, dropping its market share to 48% – a shock for a continent that usually receives about three-quarters of total global cross-regional investment, according to CBRE. “This was largely due to constrained debt markets and a paucity of transactions given pricing uncertainty.” The UK led the region with $7.8 billion in H1 2023 foreign capital inflows, while the European logistics hubs Rotterdam and Helsinki also received substantial investment.
The APAC area also saw a 33% fall in foreign capital to $4.1 billion. Investment from the U.S. was down 29% on its five-year average but showed a strong preference for office and multifamily investments in Japan and logistics and industrial assets in Korea.
“Global investors likely will remain cautious for the rest of the year due to high interest rates and economic uncertainty. Nevertheless, we expect the global investment market to begin recovering in the first half of 2024,” CBRE commented.
Source: “Global CRE Sales Drop 52% in H1”