Disconnect between capital markets and real estate fundamentals continues

The July 2023 edition of Global Market Insights reflects on the global real estate market’s reaction to a confusing macroeconomic background. 

Key highlights: 

• Core inflation remains stubbornly high and central banks have raised interest rates at a record pace. Yet, across all major economies, the forecast recession has yet to materialise. 
• The global real estate market correction continues but Asia Pacific is proving more resilient than both Europe and the USA. The ANREV, INREV, NCRIEF indices reveal that the performance is far from uniform.  
• Pricing in the secondary market reflects weakening demand, particularly for US diversified core funds due to exposure to an office sector which is viewed with extreme caution. 
• Contrarian investors now see value in the retail sector. Retail values have fallen for five consecutive years. Rising yields have a diminishing impact on valuations and a high running yield offers protection from further falls in value. 

The Global Research Committee commented that: 

“Managers are … swiftly adjusting asset valuations to reflect higher costs of capital. The stated benefit is to discourage tactical redemptions at “yesterday’s” price and encourage swifter inflows from new investors. By providing more transparency and market insights, NCREIF, INREV, ANREV are creating better conditions for increased liquidity solutions to long-term investors in the sector.”

Global Market Insights is a joint publication by ANREV, INREV and NCREIF. 

July’s edition also features the launch of the Global ODCE Consultation Index. The index measures the performance of 50 funds; 8 from Asia-Pacific, 16 from Europe and 26 from the US, with a combined total gross asset value of $403 billion.