2023 Real Estate Outlook: What Lies Ahead?

The past year has not been a good one for real estate.

The past year has been a challenging one for the real estate market. In January, Blackstone Real Estate Income Trust (BREIT) faced redemption requests of $5.3 billion, with only a quarter of the amount ($1.3 billion) fulfilled. The situation raised concerns among analysts, as BREIT’s $71 billion fund is considered a barometer for the ailing commercial real estate market. In addition, KKR and Starwood Capital also had to limit withdrawals from their respective property funds.

Deal-making has slowed, which is notable with News Corp’s attempted sale of its 80% share in Move Inc (one of its highest-valued assets) to CoStar falling through in February.

Meanwhile, residential markets have seen house prices drop by 11% below their peak in real terms. The reasons for this slump are clear: energy bills surged following Russia’s invasion of Ukraine, salaries are under pressure due to inflated living costs, and mortgage approvals for new buyers have reached their lowest level since 2009, except for the pandemic. These factors have led to decreased demand, leaving sellers struggling with plummeting property valuations.

As we head into the second quarter of 2023, will we see an uptick in deal making?

Recent murmurs of investor optimism might suggest an affirmative answer. February marked the first time in six consecutive months that there has been a decline in the number of repurchase requests at BREIT.

However, this rising confidence might only be reserved for select sectors.

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Warehouses remain a safer bet than offices, with shifting working practices expected to push office vacancies to 55% above their pre-pandemic peak by 2030 (Cushman & Wakefield). E-commerce giants like Amazon have even reined in their expansion plans, which contrasts starkly with 2020 when demand for fulfilment centres outstripped supply.

Meanwhile, the US housing market has proven to be surprisingly resilient, but UK house prices saw their largest decline in over a decade in February 2023. For the residential situation to turn, a reduction in interest rates coupled with falling energy prices may be the likely prerequisite to easing pressures.

What can stakeholders do?

As developers face a property downturn, investor retreat, and mounting regulatory hurdles, planning for these challenges will be key to thriving in an unpredictable year. Backlogs in processing planning applications further complicate the situation. To mitigate these obstacles, taking the opportunity to plan for these challenges might be key to thriving through an unpredictable year ahead.

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