Real estate investors expect this year’s tougher economic headwinds to result in more distressed asset sales, more expensive debt and capital shifting to safer assets with more predictable cashflows.
According to a new study published by Auxadi, an accounting, tax and payroll service provider to private equity, real estate and multinationals, over four fifths (82%) of real estate investors expect to see a rise in distressed assets coming to market, up 15% on last year, with interest rate hikes and cost pressures mounting set to take their toll.
The advisor says it polled 100 senior representatives at real estate funds in the UK, Continental Europe and North America with average assets under management of €14.5 bn.
Some 81% predict a reallocation of capital to commercial sectors with safer cashflows such as medical facilities, self-storage and industrial, and 79% flagged the rising cost of debt, up 22% from 2021, the biggest year-on-year.
The study also reveals where real estate investors expect to see the biggest opportunities. Over two-thirds (69%) of real estate investors expect the residential sector to post the strongest gains over the next two years, ahead of central business district-located offices (56%) and food-anchored retail parks (49%).
The residential sector has seen the biggest post-pandemic bounce in sentiment in the past 12 months – up from fourth place last year scoring just 30% – with investors recognising that the sector’s long-term structural supply-demand imbalance has gathered fresh momentum.
After a record-setting year in 2021 where the logistics sector made up nearly a quarter of all commercial real estate investment globally, it has registered the biggest drop in performance expectations, down 26% from 54% to 28%.
Real estate investors expect food-anchored retail parks to see the biggest improvement in fundraising sentiment, up 16% from last year to 87%, benefiting from the post-pandemic shift in consumer shopping habits, ahead of the alternatives sector (83%), supermarkets (81%) and residential (81%). One of the biggest casualties of Covid-19, the high street retail sector, is expected to attract more fundraising over the next two years, up 21% from 2012 to 80%.
Rima Yousfan, head of funds at Auxadi said: ‘Given the worsening economic climate exacerbated by the war in Ukraine, rising inflation and volatile markets, real estate investors are showing a more bearish outlook with distressed asset sales, a flight to capital safety and slower deal flow as key trends for the year ahead.’
‘Our research also highlights how the real estate industry is continuing to adjust its outlook as the pandemic subsides with renewed support for central business district offices and retail parks as well as a strong vote of confidence in the residential sector.’
‘ While the logistics sector will continue to benefit from the rise in e-commerce and tighter supply chain management, investors may be concerned about how valuations have risen.
