Savills Investment Management
Savills Investment Management 2023 outlook:
Urban commercial real estate and logistics, consumer staples retail, residential, and real estate debt projected to be safest investments in 2023
According to the latest Savills Investment Management investor report, the Global Investor Outlook, the real estate market is expected to be tough next year, requiring investors to go back to basics and look at fundamentals. is emphasized.
However, in such an environment the market will always overreact, so we believe sectors with long-term and strong growth are attractive. Value exists in all sectors, but prime locations, strong ESG ratings and strong fundamentals will be even more important.
TOKYO, January 19, 2023 – Savills Investment Management (Savills IM), an international real estate investment management firm, today announced its outlook on the global real estate investment market to 2023.
While 2023 looks set to be a tough year for all investors, Savills IM believes urban commercial and logistics facilities, affordable housing, and staple retail facilities will be attractive in the face of turbulent global markets. I’m here.
Short-term macro risks include rising inflation, rising interest rates, and the risk of an economic recession, which are expected to affect investments, tenants and tenants.
In particular, highly leveraged borrowings will be significantly impacted by rising interest rates, and £60bn of outstanding UK loans are due to be redeemed or refinanced within the next two years. A similar situation is expected in other investment markets. The slowdown in economic growth and the risk of recession will cause tenants and tenants to wither, and this tenant and tenant market is also expected to be in an unstable situation.
However, if we prepare now, we will reap the benefits when the economy picks up. Properties that are expected to generate stable and continuous rental income and are highly evaluated by ESG are particularly suitable for investment.
Sector-wise, Savills IM sees affordable housing as a sector with long-term growth potential due to high demand, easy yield projections and positive social impact. . It is clear that public efforts alone will not be enough to solve the problem of housing shortages. It is thought that opportunities to be implemented under the initiative of private companies will increase.
On the other hand, the real estate debt market is also noteworthy as an alternative investment. Given market volatility, major financial institutions are expected to be very cautious in 2023. This is expected to constrain the market supply of debt financing. For this reason, higher interest rates and stricter conditions are expected for refinancing, and the supply of debt by debt-providing institutions to replace financial institutions is expected to increase. Debt funds will also dominate sectors and properties where banks and other financial institutions are generally reluctant to lend.
The Asia Pacific (APAC) region is gaining more attention as a market that is less affected by the economic turmoil in the European market. With relatively low inflation and a stable employment environment, Asian countries are gaining a foothold to drive economic recovery. After the interest rate hikes have settled down, income during the period has come to be emphasized among the investment return components, and trends such as high-quality properties demanded by tenants and properties that can meet increasingly stringent ESG regulatory requirements are emerging. Investors and property owners who pursue change-ready investments will be well positioned. Kiran Patel, Global Head of Investments and Global Deputy CEO, commented: “2023 promises to be a difficult year for real estate investors. Yields will continue to expand and refinancings over the next 12-24 months will be hit by higher interest payments. Even under adverse market conditions, we believe that investment opportunities exist for investors who are familiar with the market.
In the housing sector, growth potential can be expected in affordable housing, where the importance of private sector investment is expected to increase. Despite rising yields, we expect multi-family real estate valuations to fall in line with the decline in valuations across the real estate market, which should lead to investment opportunities. Debt markets continue to offer attractive risk-adjusted returns with townside protection. Deals that were previously financed as standard bank loans will now turn to loans such as debt funds, and we expect a large proportion of loan demand to flow to these alternative loan facilities when refinancing.
Convenience store retailers and last-mile delivery logistics will particularly benefit from structural changes associated with urbanization. We believe that these asset classes are well suited to investing in periods of bearish pricing, albeit in the short term. 2023 looks set to be a tough year, but unlike previous global recessions, real estate lending is generally well-disciplined, the glut of new real estate is very limited, and job growth is expected to remain low. The stats themselves also show resilience. Real estate will benefit from higher household incomes, but the effects will be offset by higher energy prices, higher labor costs, and higher interest burdens that will burden tenants and investors. We view this situation as short-term, and acquiring sectors or properties with long-term stable fundamentals will be a good investment to prepare for the next economic cycle. . ”
Savills IM 2023 Sector Forecast
2023 Asia-Pacific region (APAC) forecast:
Compared to Western countries, APAC countries are under different economic cycles. The United States, Europe and the United Kingdom have been hit by the highest inflation rates in decades, but the impact within APAC has been relatively modest. This allows for superior diversification not only for Western investors, but also for APAC-based investors. In addition, from the perspective of
fundamentals, we can see that the market is solid, and it is expected that the market will suffer less damage in 2023 and the time required for recovery will be short. In particular, the following
sectors/regions deserve attention:
-The multi-family residential sector in Japan is arguably the strongest performing real estate class in the world. Although the population continues to decline slightly, a large influx of people from rural areas nationwide to metropolitan areas is contributing to population growth in urban areas. As the socioeconomic environment changes, the influx tends to prefer long-term rentals of small family rental units and detached condominiums.
Urban commerce and logistics
-We are observing the logistics sector as an active investment area. Along with the supply shortage of modern logistics facilities, the rapid growth of e-commerce has led to a structural shortage of logistics warehouse facilities in the real estate markets of Asian countries. As this situation is expected to continue for some time, we can generally expect stable income during the period in this sector. becomes.
daily necessities retail
– Adjacent to a densely populated area, we believe that a
community-based retail business that handles a wide range of items is attractive for investment.
-Remote working trend has not taken root in offices in central business cities in APAC countries except Australia. Instead, there is a growing trend toward “hub and spoke” offices, where companies maintain office functions in central business districts while establishing satellite offices around the country to increase flexibility in where employees work. I’m starting to consider getting it. For this reason, the rent increase of high-quality office properties located in excellent locations away from central districts is expected to exceed the national average rent increase, and there is a possibility that these office properties will meet investment expectations. However, we believe that these properties need to be fully equipped and have a high ESG rating.
2023 European market forecast
-With structural changes such as remote work from home, there are changes in the intended use and requirements of office properties, increasing the risks in this sector, especially in terms of stable rental income.
-Amidst a shortage of quality properties that can satisfy tenant demand and the prices of core properties still remaining high, we will be able to flexibly respond to future tenant demand by acquiring B-class office properties in good locations and building a portfolio of these properties. Such an investment strategy is attracting attention as it can expect an increase in rental income that can absorb the increase in operating costs. However, investing in properties that do not meet strict ESG standards and energy
consumption standards due to aging facilities, etc. requires careful consideration as there is a risk of securing rental income and the property becoming obsolete.
-One of the major sectors with the strongest fundamentals. In particular, there is strong demand for high-quality commercial and logistics facilities located in urban areas close to final consumers. is difficult to secure.
– The logistics sector remained strong even during the COVID-19 pandemic. It is expected to adequately meet investment demand and maintain solid performance even in the difficult economic environment ahead.
-The existence of a significant gap in structural supply and demand means the sector remains resilient, with value gains likely to mitigate the risks posed by the economic cycle.
– The Urban Logistics and Small Retail sector is expected to outperform the stable rental income sectors of residential, large logistics and food retail.
-While the press tends to point to the retail real estate sector as a tough one, a closer look reveals that the right investment
– Investors in this sector should focus on good location and convenience, but should examine the tenant’s ability to pay for that rent ‘premium’.
– Rising cost of living and rising inflation in many markets will drive consumer demand more toward basic necessities.
-Even under the COVID-19 pandemic, the daily necessities retail sector has shown strength, and while demand for luxury goods is expected to decline, demand for daily necessities is expected to continue, making it a relatively safe investment sector compared to other sectors. will continue. A case in point is a retail complex with flagship
supermarkets that has continued to perform well from the early days of the pandemic to the present day.
-The residential sector is less susceptible to the volatility of the commercial sector and provides long-term and stable rental income. It is thought that the market will develop into a more mature market even in the current economic cycle.
-With demographics, social trends and the gap between supply and demand in the sector, we believe that investment in multi-family properties, especially within the residential sector, will become more attractive. While the short-term outlook is for further price declines, from an investment perspective, this could be seen as an opportunity to invest in sectors with strong long-term fundamentals. -In 2023, banks and other financial institutions will tighten lending standards, which will be advantageous for equity investors who buy properties when they sell them.
-Affordable housing is in constant demand despite a significant supply shortage, making investment in development from the public and private sectors an urgent issue, making this an important real estate sector. 2023 will be a pivotal year in that it will be imperative to redirect investors’ eyes and their investment capital towards building better quality homes that meet the needs of residents.
-Housing in Europe is particularly dilapidated, energy inefficient, unsuitable for demand, and poorly located. As such, we believe there are investment opportunities in housing businesses that meet the needs of current occupants and popular locations, trends, and affordable rent levels for the middle class.
– Rising interest rates will likely be the most important factor in investors’ investment decisions in 2023.
– In the short term, banks are expected to reduce risk assets within their assets, and banks’ real estate lending will be limited to some extent. On the other hand, this means that lending functions such as debt funds, which can substitute for lending positions in such changes in the lending environment, can be expected to improve lending economics.
About Savills Investment Management
– Savills Investment Management operates in Amsterdam, Bangkok (collaboration with Savills Thailand), Frankfurt, Hamburg, Katowice, Kuala Lumpur (collaboration with Savills Malaysia), London,
Luxembourg, Madrid, Milan, Munich, Paris, Singapore, Stockholm, St. A global real estate investment and management company with offices in Helia, Sydney, Tokyo and Warsaw.
-As of June 30, 2022, Savills Investment Management has €26.9 billion in assets under management.
-Savills Investment Management is a commercial law representing Savills Investment Management LLP and its subsidiaries.
-Savills Investment Management LLP is a UK registered limited liability partnership (registration number: OC306423), accredited and regulated by the UK Financial Conduct Authority (FCA).
-Savills Investment Management is licensed by the UK, Australia, Italy, Germany, Jersey, Japan, Luxembourg and Singapore.
-DRC Savills Investment Management is a leading provider of commercial real estate debt investments for the UK and Europe. Headquartered in London, DRC SIM advises institutional and discretionary funds around the world.
-DRC Savills Investment Management LLP is a UK registered limited liability partnership (registration number: OC371403), accredited and regulated by the UK Financial Conduct Authority (FCA).
This press release is for informational purposes only and the information contained herein is general and does not address any individual recipient’s circumstances. This press release is not intended as investment advice or a solicitation of any kind.
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