Schroders Global Real Estate Lens May 2023: your go-to guide to global property markets

We are pleased to provide you with the April edition of our monthly Global Real Estate Lens summarising the key data and trends for prevailing economic and capital market conditions, real estate occupier markets, and private real estate debt markets.

The tragic conflict in the Ukraine unfortunately continues and material inflation and interest rate rises to control inflation seen across the globe, signal a regime shift in macroeconomic and monetary policy. Current market circumstances and the economic outlook are likely to continue to lead to pressure on pricing of real assets globally over the coming months, especially in light of recent events in the banking sector and the risk of this triggering broader contagion effects. Fringe markets and secondary assets remain most susceptible to anticipated declines.

May’s Lens highlights the following:

• Schroders continues to see high inflation forcing real growth lower during 2023 as the global economic growth loses momentum and remains set for its weakest year since the Global Financial Crisis (when excluding the pandemic)
• Alleviating this inflationary pressure are energy prices, which whilst at elevated levels, have seen declines and global supply chain pressures have also eased
• To counter prevailing high inflation monetary policy is having to become restrictive. However, policymaker focus could shift to supporting economic activity, with potential rate cuts later in 2023, especially in light of recent market events.
• During 1Q23, according to MSCI data, global transaction volumes declined by 52% over the year. European deal volumes were most impacted, falling an annual 64% representing an 11-year low and the US also showing a meaningful equivalent fall of 56%.
• Further declines in transaction pricing were recorded during the first quarter of 2023, according to Green Street Advisors data. Both Europe and the US experienced broadly similar annual falls of 21% and 18% respectively, with the office sector seeing the greatest decline followed by multifamily
• Global private real estate fundraising has slowed dramatically during 2023 to date with Preqin registering a little under $55bn of new capital raised. Despite this, recorded dry powder levels marginally ticked up to $380.7bn, highlighting the slowdown in real estate capital markets as investors adopt a ‘wait-and-see’ approach
• Despite not reflecting the most recent banking sector events, Federal Reserve survey data for 1Q23 showed that US banks further tightened their standards for commercial real estate lending at levels consistent with those observed during prior phases of significant market volatility such as the GFC and pandemic periods.

You can download the full report here.