Global capital flows to real estate hit new high in Q1 2022: JLL 

DIMINISHING operational uncertainty, robust demand and abundant liquidity spurred a flurry of activity in global real estate, leading to Q1 2022 being the most active first quarter on record for capital market investment volumes.

A Global Real Estate Perspective report released by JLL in May showed that global volumes climbed 47 per cent year on year to US$292 billion in the first quarter of 2022, with all 3 regions of the Americas; Europe, Middle East and Africa (EMEA); and the Asia-Pacific posting healthy gains in transaction activity.

“The depth and diversity of investors and lenders is supporting strong liquidity and healthy bidder pools,” said the report’s authors. “Allocations to real estate continue to rise, funds that closed during Q1 were oversubscribed by an average of 10 per cent and global dry powder remained near all-time highs at US$388 billion.”

Following record quarterly activity in Q4 2021, cross-border acquisitions moderated to historic norms at the start of 2022, with private investors playing a larger role in the markets, representing more than 43 per cent of volumes – a record share of activity.

However, the authors also warned that markets face renewed headwinds as a result of elevated inflation, geopolitics and tightening monetary policy, with sentiment shifting in recent weeks. While ongoing strength is anticipated throughout the rest of 2022, risks have increased, and a degree of caution is now needed, they wrote.

Speaking to The Business Times recently while visiting Singapore, JLL global capital markets’ chief executive officer Richard Bloxam said: “Q1 looks robust, with a lot of equity, well-capitalised lenders and investors all keen to deploy into real estate. And one of the interesting trends that's taking place is that they're increasingly flexible about how they do it. They could take a position in credit markets, around debt in real estate, taking limited partner interests, doing entity level trades and so on. So the world of real estate capital markets is no longer as simple as selling a building.”

And while he does not see any challenges around liquidity, he says there is definitely higher scrutiny of investment decision making emerging in the underwriting of real estate trades.

Bloxam also noted that investors from Europe and North America are under-allocated to the Asia-Pacific region, and most of them are looking to increase their allocation to the region — which “will be a growth engine for the world”.

Across sectors, the economic recovery triggered an improvement in fundamentals in Q1 2022, with investment into hotels, retail and offices growing on a par with or in excess of the overall market, said JLL’s report.

Investors also remain focused on portfolio diversification and are aligning investment strategies to longer-term economic and demographic shifts — benefiting logistics, living and healthcare assets.

“Student housing, logistics and convenience retailing performed very well during the pandemic in every country around the world,” noted Bloxam. “Data centres, critical infrastructure and the life sciences are also going to see investments.”

Global office market demand held up well in Q1, with quarterly leasing volumes up 36 per cent compared to the corresponding period a year ago. However, they are still below pre-pandemic norms, at 24 per cent down on Q1 2019.

Pricing for high-quality and premium office space remains resilient, although the global vacancy rate edged up again in Q1 to 14.7 per cent. The peak of the development cycle is expected to occur this year with issues such as the Ukraine war and increasing construction costs impacting future pipeline, wrote the authors.

Meanwhile, supply-demand imbalances continue to be a key theme in major logistics markets across the world, with vacancies still at all-time lows in the United States and Europe, and trending back down in the Asia-Pacific.

Despite construction pipelines being at record highs in the three regions, the level of demand is so high that new projects “cannot come online fast enough” said the report. Every region recorded strong rental growth in Q1.

In the retail space, there were upbeat expectations in many countries at the start of 2022, but the short-term retail sales growth outlook has softened in recent months due to continued Covid impacts, operational challenges, inflation and weaker consumer sentiment in some markets.

Notwithstanding the uncertain outlook, leasing activity remains robust in many of the large, mature retail markets, with retailers targeting domestic consumers continuing to push ahead with new store openings and the introduction of new store concepts.

Over in the living (including student housing, residential and later living) sector, buoyant buyer demand boosted by solid investment fundamentals has continued to drive investment activity globally.

Although inflationary pressures and rising construction costs suggest some headwinds, the sector is still one of the most favoured in all 3 regions. Total living investment in Q1 was US$83 billion, with quarterly volumes at all-time highs in the Americas and increasing in the Asia-Pacific.

Finally, while recovery in the hotels and hospitality sector continues to favour leisure and resort destinations, urban markets are now seeing greater momentum in their revival as more employees return to the office and mask mandates/vaccination requirements across restaurants and live entertainment venues are removed.