Distressed real estate assets will flood the market as the flight to safety increases | New
According to research published by consultancy Auxadi, real estate investors expect stronger economic headwinds this year to result in tougher asset sales due to more expensive debt, prompting capital to move to safer havens with more predictable cash flows.
According to the research, 82% of 108 high profile real estate investors surveyed expect to see an increase in distressed assets coming to market, up 15% from last year, with rate hikes of interest and growing cost pressures that are expected to take their toll.
Almost as many investors (81%) foresee a reallocation of capital towards commercial sectors with more secure cash flows such as medical facilities, self-storage and manufacturing, with 79% of respondents reporting the rise in cost of debt, up 22% from 2021, the largest year-over-year increase.
Deal flow is the second highest increase after the cost of debt, up 21% from a year earlier to 75%.
The study also reveals where real estate investors expect to see the greatest opportunities. More than two-thirds (69%) of real estate investors expect the residential sector to see the biggest gains over the next two years, ahead of offices in the central business district (56%) and parks food-oriented businesses (49%).
The residential sector has seen the biggest post-pandemic rebound in sentiment in the past 12 months – up from fourth place last year at just 30% – with investors acknowledging that the long-term structural imbalance of supply and demand from the sector has gained new momentum.
After a banner year in 2021 where the logistics sector accounted for nearly a quarter of all commercial real estate investment globally, according to JLL research, it has seen the largest drop in performance expectations, down from 26%, dropping from 54% to 28%.
The report, “Real Estate: Balancing New Risks and Opportunities in a Changing Investment Landscape”, is the second annual real estate report commissioned by Auxadi, and was based on interviews with UK-based investors, in Continental Europe and North America with average assets under management of €14.5 billion.
The study found property investors expect food-anchored business parks to see the biggest improvement in fundraising sentiment, up 16% from a year ago to 87% , benefiting from the post-pandemic change in consumer buying habits, ahead of the alternatives sector (83%), supermarkets (81%) and residential (81%).
One of the biggest casualties of Covid-19, the retail sector, is expected to attract more fundraisers over the next two years, up 21% from 2012 to 80%, respondents said.
Rima Yousfan, Head of Funds at Auxadi, said: “Given the deteriorating economic climate exacerbated by the war in Ukraine, rising inflation and market volatility, real estate investors are showing a more bearish outlook. with distressed asset sales, a flight to capital safety and slowing deal flow as key trends for the year ahead.
“Our research also highlights how the real estate sector continues to adjust its outlook as the pandemic subsides with renewed support for central business district offices and business parks as well as a strong vote of confidence. While the logistics sector will continue to benefit from the rise of e-commerce and tighter supply chain management, investors may worry about rising valuations.
“Over the past 12 months, we have seen a significant increase in the number of REITs that are outsourcing more of their operational functions, such as SPV administration or their accounting and tax, to third parties in order to focus their efforts. on completing acquisitions, and we expect this to continue as these companies take advantage of the attractive investment landscape.
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