Real estate investment: looking back on 2022 and towards 2023

It has been a tumultuous year for real estate markets in the UK and across the globe. The lingering consequences of the pandemic, supply chain disruption and complicated international relations have all played their part.

If that were not enough to knock investor confidence, inflation hit a 40-year high, with owner occupiers’ housing costs (CPIH) rising by 9.5% in October. Although this figure dropped to 9.3% in November, the impending recession has now been confirmed.

However, a large proportion of investors made the most of new opportunities in 2022 and found success in attractive alternative sectors — looking to secure favourable returns despite evolving uncertainties.

As we approach the new year, we look back on the top themes from 2022 and how they will change and develop in 2023…

This year’s real estate investment market 

The European student accommodation sector grew more popular in 2022, with investments rising by 16%. This strong investor interest, particularly in purpose-built student accommodation (PBSA), has in large part been driven by rising student numbers and an undersupply of PBSA stock across European markets.

The cost-of-living crisis has also had a significant impact. In the UK, domestic electricity and gas prices rose by 45% and 84%, respectively — exposing problems with the country’s outdated housing stock.

Equally, across Europe, many care homes faced closures. Coupled with a rapidly ageing European population, the cost-of-living crisis prompted a rise in demand for better care homes — carving out another attractive sector for real estate investors.

The rise in inflation sparked a significant increase in mortgage rates. Thus, competition grew fierce for rental properties, and private landlords ramped up rental prices in response. Fortunately, the UK build-to-rent (BTR) sector presented an ideal solution to this problem, and BTR saw £2.5 billion of investments in the first six months of 2022 alone.

What real estate investors can expect from the new year

This year’s key themes will continue to influence the global real estate investment market in 2023, with Colliers’ ‘2023 Global Investment Outlook’ report showing that 88% of investors feel interest rates are the greatest challenge moving forward, alongside inflation (78%) and supply chain disruption (68%).

However, economic indicators suggest that stabilisation will occur by mid-2023 — and investors are expected to adapt to the new landscape.

A new financing reality will emerge

Next year will see the current stand-off between vendors and purchasers dissipate as long-term interest rates stabilise and vendors accept reduced pricing.

The year-end valuation cycle may well mark the low point of this downturn, so long as valuers fully reflect the current scarcity of finance and its true costs in their calculations.

ESG criteria will prove increasingly important

There will be a continued rise in environmental, social and corporate governance (ESG) in 2023.

Contrary to previous years, where environmental concerns have typically taken precedence over social and corporate ones, we expect all three facets of ESG to earn equal attention in the coming months.

Protecting the health and well-being of tenants with better facilities, like larger outdoor spaces and a wider selection of local cafes and shops, is just one way investors will ensure new properties address social concerns. These measures will enable landlords to avoid a ‘brown discount’, where inferior energy efficiencies cause lower rental and sale prices, as well as higher occupancy voids and increased operational costs.

Preferential markets will change

In 2023, we can also expect a partial return to traditional commercial markets.

The two most popular sectors for the year ahead are likely to be offices and industrial, with 60% of investors putting these stable, risk-adjusted opportunities at the top of their priority lists, according to Colliers’ ‘2023 Global Investor Outlook’ report.

For the best possible chance at securing attractive returns in such sectors, investors will gravitate towards geographical and demographic hotspots and work with best-in-class operating partners and asset managers. Cities with the highest demand for privately rented accommodation will prove the most popular, with UK examples including Manchester, Edinburgh and Nottingham.

However, London will still prove a reliable source of returns due to its logistical benefits and wealth of facilities — joining Paris, Berlin, Madrid and Munich in the top five cities for real estate in 2023.

Rynda Property Investors is a pan-European asset management solutions provider with a proactive investment strategy that allows us to stay ahead of the real estate investment curve and facilitate the most attractive returns. For help making the most of next year’s real estate market, call +44 (0) 20 3709 9875 or fill out our online form.