Pace of capital formation and transactions strained by higher cost of capital

The rising cost of capital and conservative underwriting are subduing the pace of transaction closings. Fundraising is more challenging in the current climate, as investors put additional allocations to the asset class on hold until denominator effect uncertainty subsides. Direct investment declined globally during Q3, down 46% year-over-year to US$131 billion. This brought year-to-date volumes to US$423 billion, reflecting a decrease of 50% and the lowest level of direct investment in over a decade. Cross-border investment trended similarly, decreasing by 56% year-to-date and representing the lowest share of cross border investment on record.

While all major sectors experienced notable declines during the quarter, sectoral outlooks in the short- and long-term are varied, as sentiment and performance across property sectors remain bifurcated. Office pricing and liquidity remain under pressure amid weak global sentiment from investors and lenders. Fundamentals across the regions reflect the increasing polarization in performance between the highest-quality assets and the rest of the sector. However, sentiment for logistics remains positive despite cooling fundamentals in the near-term and volumes declining globally, and markets in the sector have repriced quickly. The living sector remains the most active globally year-to-date, although fundamentals are more muted and settling around long-term averages.