Commercial real estate investors could forgo the mantra ‘survive until 25’, replacing it with ‘don’t ignore ‘24’, says Savills. With potentially US$761bn sitting in global closed-ended funds at the end of 2023, higher than the US$749bn available at the end of 2022*, and encouraging inflation data and a major repricing in interest rate expectations marking an inflection point in investor activity and optimism, the international real estate advisor says that investment volumes could swiftly rise this year.

According to Savills, with price pressures dissipating faster than many expected, and economic growth proving relatively resilient to many headwinds, central banks should start easing rates around the mid-year, which will increase the pool of buyers and sellers and underpin a recovery in CRE markets, with the ‘fear of missing out’ factor providing impetus for investors to buy sooner rather than later. Savills says that an estimated US$761bn* was sitting in global closed-ended funds at the start of the year ready for deployment into real estate.

“As in any cycle, the greatest returns are made by investors who buy closest to the market nadir, so any evidence of a fledgling recovery will bring investors quickly in from the cold, looking for a first-mover advantage, comments Oliver Salmon, Savills World Research Director, Global Capital Markets. “Much of the optimism we’re seeing is based on expectations of lower rates. As these expectations come to fruition the FOMO dynamic will be reinforced, both via a lower cost of borrowing and via pricing, by boosting the premium of real estate to the prevailing ‘risk-free’ return and so negating any perceived need for prices to adjust further, closing the valuation gap between public and private markets.”

Rasheed Hassan, Head of Global Cross Border Investment at Savills, adds: “Interest rates remain key to the capital markets outlook this year. Short term volatility may persist as the timing and pace of the policy pivot comes into focus, but dealmaking should recover momentum in line with the wider economic outlook. This will be supported by greater price discovery as motivated sellers bring more stock to the market, with the fear of missing the bottom of the market pushing more buyers to become active. But while the timing looks good to return to the market, investors may struggle to find a suitable entry point, given a lack of available stock.”

Savills forecasts that the US market could see a strong bounce back in deal activity especially if its economy continues to show resilience, as much of the global dry powder continues to favour it, with opportunistic investors positioned to act amidst a notable outward shift in property yields, and expectations of more motivated sales activity. The US logistics and multifamily sectors offer the most attractive fundamentals to investors, says Savills. In Europe, it expects a reasonable recovery in 2024, with investment volumes rising by around 20% in comparison with 2023; it forecasts that among the more active buyer groups will be the newer French property funds (SCPIs), insurance companies, Middle Eastern investors, and US private equity. Activity will also be driven by opportunistic investors enticed by the prospect of favourable pricing adjustments, while core investors will maintain their focus on the premium green segment of the market.

In Asia Pacific, Savills expects higher investment volumes this year, albeit the region’s comparative resilience over the last 12 months will imply only modest growth compared to the other regions which are coming off a lower base. Japan will be at the forefront of any recovery, followed by those markets where interest rate pressures have been most acute, with China lagging the rest of the region. Some long-haul capital will return as a recovery in the global economy encourages greater risk taking behaviour, however Savills notes that capital inflows from outside of Asia Pacific into the region fell by more 54% in 2023 to a 13 year low (a 9% share of 2023’s market compared to 20% in 2019); and that its capital markets are increasingly a regional affair. Intra-regional cross border investment fell just 13% in 2023 with investors from Japan and Singapore increasingly active, as well as Mainland Chinese investors. Savills says that Australian logistics, multifamily, student accommodation and senior housing; offices and logistics in South Korea; retail in Singapore and Hong Kong; and offices in India, are likely to be the key targets of this regional capital in 2024.