News

Real estate 2023: Into the headwinds

The sector's ability to adapt to changing circumstances underlines positivity and upbeat sentiment about the future—particularly in the longer term

The findings reveal an industry in a period of instability and disruption, with investors, lenders, operators, and advisers cautious and taking pause to reset expectations and risk appetites in response to a rapidly changing macro-economic landscape.

While real estate stakeholders may be concerned about the challenges posed by short-term volatility, over the long term, most respondents remain positive about the sector's prospects and continue to have conviction in the relevance of their strategies and the ability of the real estate sector to adapt to changing circumstances.

Real estate M&A: A waiting game with a positive horizon

M&A: Key findings

• The respondents are almost evenly split in their short-term assessment of the market: some 52% are uncertain or pessimistic about real estate deal-making opportunities while 48% are more upbeat about the outlook.
• Sentiment much more positive over the longer term, with 75% of those polled cautiously optimistic or optimistic about M&A over the 12 – 36 month horizon.
• Current choppy markets will see real estate dealmakers focus predominantly on off-market deals (28%) and distressed/ restructuring opportunities (26%).
• Over the next 12 months, most respondents expect to tap the brakes on M&A to focus on organic growth or simply sit out the current period of market flux. Over the longer-term horizon, more respondents expect to return to M&A activity.

Rising interest rates, volatile asset valuations and fears of housing market corrections have taken their toll on global real estate activity through the course of 2022.

After reaching record highs in 2021, global real estate deal value has tailed off this year with the deal value of US$191.53 billion secured over the first nine months of 2022, down 13% year-on-year, according to White & Case's M&A Explorer.

Deal value for 2022 is down despite a solid first six months of 2022 and without the uplift of a cluster of jumbo real estate deals closed in the first half—including warehouse operator Prologis's US$26 billion bid for Duke Realty and Blackstone's US$13.1 billion acquisition of student housing business American Campus Communities—year-on-year comparisons would have been even less flattering.

Indeed, real estate activity has dropped off materially in Q3 as the impact of rising interest rates in the US and Europe knocked sentiment. Q3 2022 real estate M&A value totalled US$22.9 billion, less than a quarter of the US$87.51 billion posted in Q2 2022 and the lowest quarterly total posted since the first COVID-19 lockdown in 2022.

Against this challenging backdrop for deals, half of respondents (52%) said they were either uncertain or pessimistic about real estate deal-making opportunities in the short term, and 48% were cautiously optimistic or optimistic.