Which CRE assets are the best options for 2023?

Colliers report reveals insights from global investors' survey conducted in October and November

Which CRE assets are the best options for 2023?
Steve Randall

Commercial real estate investors in the Americas favour multifamily and industrial as their top investment choices for 2023.

In the evolving market, the recent survey by global real estate firm Colliers reveals that investors are anticipating asset value declines in the coming year, due to the higher cost of capital, construction, and operations, as well as availability of product.

There has already been a rapid pricing reset in the US, UK, and some other countries, but it has not been universal.

Colliers expects stabilization of the global real estate market by mid-2023. 

David Amsterdam, president, US Capital Markets & Northeast Region, says that, in the US, investors will find opportunities in the gateway markets as liquidity events force decision making.

“This will allow buyers to reposition assets, through reinvestment or conversion. Alternative asset classes such as life science are viable targets, while residential conversions are also gaining traction,” he said.

The report also shows that investors in the Americas are less concerned that their EMEA and APAC peers about deglobalization, demographic pressure, and currency fluctuation. Inflation remains a key concern for its impact on asset values.

Multifamily is #1

The top investment choice for 2023, as cited by respondents to Collier’s global poll, is multifamily.

The asset class has led US sales volume in recent years and is set to continue.

“The U.S. is vastly under-housed and this won’t be solved in a short amount of time. This is exacerbated in a higher interest rate environment with the cost of building materials rising and labor shortages prevalent,” said Aaron Jodka, Director of Research, US Capital Markets.

Industrial takes second place with last mile distribution properties continuing to try to capture momentum from e-commerce. This is also seen as a defensive strategy due to strong occupancies and rising rental rates in this asset class.

ESG-compliant properties in central business districts are the key focus for office investors: “ESG is beginning to have a meaningful impact on investment decision making,” the report states. However, in secondary markets, value-add is more important than energy efficiency.

For retail, grocery-anchored centres are the top choice while luxury is the key for hotel investments.

Life science, data centres, and student housing are the main focus areas for alternative asset classes. Core investors have the most negative outlook on office, as 55% expect losses for the asset type.

Ready to invest

The report highlights that investors have more capital on the sidelines than ever before, ready to jump on opportunities.

“Recapitalization, preferred equity, and mezzanine debt strategies are gaining traction and attention. Liquidity remains widely available, though the sources of capital have changed,” the report states.