Bouwinvest International Outlook 2023-2025

Falling global real estate prices will trigger buying opportunities, especially for non-leveraged investors- Bouwinvest International Outlook 2023-2025

The repricing of commercial real estate properties across the globe, ignited by the rising cost of debt following a flurry of interest rate hikes this year, is likely to generate attractive buying opportunities, especially for non-leveraged investors, Dutch institutional investment manager Bouwinvest Real Estate Investors concludes in its International Outlook for 2023-2025. 

Jeroen Beimer, Head of Research and Strategic Advisory, said: “Institutional investors have flocked to the real estate sector in the past 10 years in their quest for an alternative source of stable income and capital growth to low-yielding bonds, but the recent rise in financing costs and the tightening spread between average real estate yields and the risk-free rate of government bonds will lead to falling prices for real estate asset globally. We expect more downward revisions to real estate valuations in the next four to six quarters, driven by further interest rate hikes, but the fundamentals for many real estate segments are still very favourable. The convergence of these trends will create opportunities for buyers who are not burdened by refinancing commitments.”  

Commercial real estate transaction levels and development activity around the globe have already slowed in recent months. Should economic conditions deteriorate further, vacancy levels will rise and rental growth will slacken, accelerating a flight to quality among investors. The residential sector and niche segments including senior living and student housing stand out as potential beneficiaries.  

Demand for ‘living assets’ (including healthcare real estate) remains strong in most urbanized areas due to demographic growth, ageing societies and the rising number of households, boosted by immigration and the expanding number of younger and older people living alone. The volume of new housing developments is also falling due to increasingly stringent environmental rules, shortages of materials and rising labor costs. Demand continues to outstrip supply, especially in the affordable segment. Increases in mortgage rates mean home ownership will move out of reach of a growing group of people, forcing them to turn to the rental market for accommodation that fits their budgets.  

Although Europe is expected to face a challenging year due to substantially higher costs of living, rising interest rates and subdued economic growth, opportunities will arise in the mid-term. Fundamental demand drivers and strong occupier markets in selected European city-sector combinations offer upside potential for the long-term.  

In the U.S., the southern sunbelt states are expected to outshine other parts of the country in the next three years due to migration patterns, a tax-friendly environment, expanding workforce and greater affordability. Various niche sectors across North America, including data centres, life science and medical office buildings, self-storage, and manufactured housing, are already quite mature and point to the way forward for the future development of real estate markets elsewhere in the world.  

Within the heterogenous Asia-Pacific region, Australia is cementing its status as a safe haven. Singapore, meanwhile, is expected to see its relative attractiveness increase versus Hong Kong while a troubled property sector and geopolitical tensions have added a risk premium in China. Japan is one of the few international markets where policy interest rates remain low and therefore the spread between the risk-free rate and real estate yields remains stable.  

For the full report, click here.

Read the Dutch Market Outlook 2023 - 2025 here.