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Global Commercial Real Estate Market Slowdown in 2022
After a remarkable year for the commercial real estate market in 2021, the real estate market slowed down in 2022. Uncertainty in the global market due to geopolitical risk and rising interest rates has tapered off activity in most sectors of commercial real estate. While the office sector remains the hardest-hit segment of the real estate market, the multifamily and industrial sectors experienced slowing demand and rent growth in the second half of 2022. At the end of 2022, office net absorption returned to negative territory, and even more office spaces have become vacant. Even though the fundamentals remain solid for the multifamily and industrial sectors, market activity has dropped. Compared to the previous year, net absorption fell by 21% and 79% in the industrial and multifamily sectors in 2022, respectively.
The 2023 Commercial Real Estate International Business Trends Report discusses the trends in foreign buyer purchases of U.S. commercial real estate in 2022 in the "large commercial real estate market," with sales of $2.5 million or over. To do so, the National Association of REALTORS® analyzed data published by Real Capital Analytics.
In this unprecedented era of uncertainty, foreign investments have also been impacted. Cross-border investment activity fell by 50 percentage points to $37.2 billion in 2022, accounting for a 5% share of total deal volume in the U.S. in 2022, down from 9% in 2021. This decrease brings 2022 cross-border sales back to the pandemic level, at $37.0 billion in 2020. Canada remained the primary source of capital, with $15.3 billion in sales, followed by Europe ($8.9 billion) and Asia ($7.8 billion) in 2022. Dallas, Los Angeles, and Atlanta were the top three destinations attracting the most foreign investors in U.S. commercial real estate as of the first quarter of 2023. Data shows that areas with fast job growth, a strong economy, favorable demographics, and solid commercial real estate markets mainly attract foreign investors. Parsing out by property type, most foreign investments were made in the industrial sector (34% of all cross-border sales), followed by apartments (27%).
Global Commercial Real Estate Market Coming Back in 2023
However, the 2023 data indicates that cross-border activity is coming back. As of Q1 2023, the volume of cross-border investments has already increased to $43 billion – 16% up compared to the end of 2022 - representing 7% of the total commercial real estate transactions. This increase was mainly reflected by a $8.5 billion increase in foreign investments from Asia in the U.S. market.
