According to Knight Frank’s Wealth Report, private investors remained the most active buyers in global commercial real estate in 2023 for the third consecutive year. Private capital invested US$338 billion globally, equating to a 49% share of total investment, slightly up on 48% in 2022 and the highest share on record.
Although private investment in 2023 nearly halved on 2022 volumes, this was a smaller contraction than institutional and public investment, both falling by 53%.
Alex James, head of private client advisory – commercial at Knight Frank’s Private Office commented: “Global commercial real estate investment fell by 46% in 2023 to US$698 billion as investors grappled with elevated interest rates and higher debt costs. Much of the contraction in investment was due to a retrenchment among US investors. Outbound US investment declined by 52% year-on-year in 2023, as investors tried to reconcile elevated domestic debt and navigate conditions in the US commercial real estate market. While global investment was relatively soft, the fact that private investors were the most active in 2023 is perhaps unsurprising. This group is relatively well positioned to transact in a higher interest rate environment, as private capital is typically less reliant on debt than other investors.”
Industrial and logistics were the most invested sector for the first time on record, taking a quarter of all global investment at US$174 billion. While industrial and logistics, retail, hotel and senior housing and care all increased their share of total investment in 2023, the office market fell from 25% in 2022 to 22% in 2023, and the living sector share contracted from 30% to 24%. All sectors recorded an annual decline in total investment in 2023, with senior housing and care (-28%) seeing the smallest decline.
However, the story was slightly different for private buyers in 2023. Living sectors were the most targeted by private capital, followed by industrial and logistics, and offices. For HNWIs, offices reclaimed its place as the top sector for investment having trailed living sector investment in 2022. Here, it is likely that HNWIs capitalised on reduced competition, potentially seeking trophy assets in a sector with a less time intensive operational model.
Keith Ooi, group managing director of Knight Frank Malaysia mentioned that: “For the Malaysian real estate landscape, 2024 heralds a significant turning point as we witness a notable shift in investor sentiment. Knight Frank’s survey shows living sectors as top choice for investors, highlighting rising demand for residential and mixed-use properties. This surge in interest isn’t confined to local borders; it resonates globally, with strong investor enthusiasm emanating from Europe, the Middle East, North America, and Asia. This trend signifies a remarkable opportunity for Malaysia’s real estate sector to attract diverse investment.”
For the first time in four years, a new sector has topped the investor wish list. The living sectors are the most in demand in 2024, with 14% of respondents to Knight Frank’s Attitudes Survey looking to target the asset class. Interest is strongest in Europe, the Middle East, North America and Asia.
Healthcare is not far behind, attracting 13% of respondents. However, intentions do not necessarily equate to transactions, due to factors including availability of stock, market size and competition. For HNWIs, the traditional sectors, including offices, retail and hotels, have usually been the most transacted over the past 10 years.
Keith Ooi, further added that: Keith Ooi, further added that: “in 2023, Malaysia secured RM329.5 billion in approved investments, which is 23.0 percent higher than in 2022, and is the highest approved investments in the country’s history. Notably, approved foreign investments accounted for a substantial 57%, emphasizing Malaysia’s attractiveness as an investment hub. Additionally, private capital favoured the living sectors, followed by industrial and logistics, with offices reclaiming the top spot for HNWIs, surpassing the living sector which led investments in 2022. The HNWIs have predominantly transacted in traditional sectors such as offices, retail, and hotels over the last decade.”
Investors from the US, Canada and Singapore accounted for just under half of all cross-border global commercial real estate investment in 2023. However, of the top 10 global cross-border capital sources, the only investors to increase investment in 2023 were from UAE (+349%) and Japan (+156%). For Japanese capital, 2023 was a record year for cross-border investment at US$8 billion, with buyers taking advantage of a significantly lower cost of domestic debt, a slower speed of transactions and a reduced global competition pool. In fact, Japanese investors were the fifth largest source of cross-border capital in 2023, their first ever appearance in the top 10.
Investors from France were the largest source of private cross-border capital in 2023, with US$3.1 billion invested. Private French capital mainly targeted European assets in 2024, particularly in Germany, Spain, Italy and the UK. Investors from the US dropped from pole position in 2022 to sixth in the top 10 sources of private cross-border capital in 2023, with investment moderating -72% year on year to US$1.3 billion. Meanwhile, cross-border capital from Spain was the largest source of HNWI investment in 2023, targeting commercial real estate in the US, Ireland, the Netherlands and the UK.
London was the top city destination for total cross-border investment in 2023, with US$7.6 billion invested. However, New York was at the top of the list for overseas private capital, surpassing London for the first time since 2016. For HNWIs, the 2023 target list looked slightly different, with Singapore, Berlin and Dublin the most invested urban centres.
Data source: The above is based on Knight Frank’s analysis of RCA data and Knight Frank’s Attitudes Survey
