Inflation and higher interest rates are among the factors that will continue to weigh on investor decision-making in 2023 as the US market continues its price discovery journey, according to the latest Colliers Global Investor Outlook report released this week. published
The cost of construction materials is increasing, and there is a labor shortage, which hinders the development of housing, for example.
Aaron Jodka, director of research, U.S. Capital Markets, said in the report, “The U.S. has very little left and it is not going to be resolved anytime soon. This is especially true in a high interest rate environment.”
Q3 put markets in price correction mode, with yield/cap ratios rising as much as 100 basis points.
However, some markets have yet to see a price correction, Colliers said, stressing that the timing of “downturns, stability and recovery” for each market and sector will vary significantly.
Overall, Colliers’ consensus is that the global real estate market will stabilize by mid-2023 as more uncertainty emerges around interest rates and the economic outlook.
Liquidity Events Drive Decision Making
In the gateway markets of San Francisco, New York, Boston, Chicago, Los Angeles, and Washington, DC, fundamental opportunities are limited, as liquidity events drive decision-making.
“This will allow buyers to reinvest or relocate,” David Amsterdam, President, US Capital Markets and Northeast Region, said in prepared remarks.
He said alternative asset classes such as life sciences are viable targets and asset transfers within the broader housing sector are also gaining traction.
Niche Markets Excluded from Major Cities
Sectors closely related to changing demographic and economic realities, such as multifamily/rental, student, and senior housing, continue to drive activity away from major cities.
And while core assets remain preferred in top global cities, “this will continue to drive investors to second- and third-tier cities, particularly in US markets,” the report said.
Equity Investors, Investment Managers Find Strategies of Opportunity
Colliers is surprised at the speed with which equity allocations and investment managers are adopting credit opportunities strategies.
“They deploy across the capital stack, pursuing what they perceive to be an attractive relative risk/reward versus holding common equity positions.” US Capital Markets Advisors Jeff Black, Head of Debt and Equity, said in prepared remarks.