Condition of uncertainty

Despite the lengthy interruption from COVID-19 and the major structural upheavals in how we live and work, real estate continues to draw money, demonstrating its superior stability and desirability relative to other asset classes. Despite widespread economic unpredictability, 2021 was a record-breaking year for the global real estate industry, with worldwide commercial sales volumes surpassing the 2020 total by 59% and the previous peak witnessed in 2019 by 22% - considerably beyond the predictions made in last year's Global Outlook.

This unusual level of activity was driven by the global demand for residential and industrial property, as well as the recognized premium between property yield and interest rates in most global markets. Nonetheless, growing macroeconomic uncertainty has given the interviewees a distinct sense of caution. Specifically, inflationary pressure, which was one of the primary worries voiced last year and is now an even greater issue, has risen dramatically. In January, inflation reached 5,1 percent in Europe and 7,5 percent in the United States, the highest yearly increase in forty years.

While the rate and magnitude of the economic recovery from the pandemic may differ from country to country, the interviews conducted for the three regional Emerging Trends reports and for Global Emerging Trends reveal significant cross-regional parallels in sector challenges and preferences.

In the past year, logistics has come to symbolize the risks and rewards of real estate investing, serving as a lightning rod for bullish and pessimistic commentary on the asset class as a whole. With an accumulation of money that favors real estate over other asset classes, residential and logistics properties continue to be the most desirable. This trend shows no signs of reducing this year or next, according to the industry leaders surveyed for this report, while pricing uncertainty abounds.

The office market, which has historically served as the cornerstone of commercial real estate portfolios, is the one area where the impact of COVID-related disruption is most noticeable. There is still no obvious direction in this situation two years after the COVID-19 breakout. Concerning how some type of hybrid working style would effect office demand, there is an unsettlingly wide spectrum of industry viewpoints. But regardless of the outcome, businesses will rent less space in the future. The resulting vacancies are unlikely to be filled by new hires or by adding the additional space needed for social distance.

The result of this broad issue for investors has been a reallocation of resources away from underserved areas and toward different types of housing. Again, over a number of years, the North American and European editions of Emerging Trends have reflected the growing appeal of residential. The same supply-demand dynamics that have contributed to the home affordability issue are, in turn, producing a compelling resilience from a capital markets viewpoint, according to interviewees for Global Emerging Trends. In comparison to commercial assets, the sector has smaller vacancies and superior risk-adjusted returns.

Top cities in 2022 for real estate investment

"The level of inflation will be greater than it has been for a while, but it won't be as high as it is right now or at a disruptive level."

 

The Global investment manager