The crisis has taken on global dimensions markets real estate and its most important cause is the highs interest rates. The crisis is reflected in the rapid reduction of funds raised by private investment companies in the real estate sector in the third quarter of the year.
According to relevant research by research firm Preqin among 61 funds that invest in real estate, it emerged that they raised a total of just $18.2 billion between July and September. This is a 71% drop compared to the previous quarter when 117 funds raised $63.4 billion. As the real estate market research firm points out, this is the lowest level of funds raised in the entire period since they began central banks to constantly increase the cost of borrowing.
All real estate markets are in turmoil and crisis as everything becomes difficult when the cost of borrowing rises. In the meantime, the situation is extremely negative as the values of some property classes have fallen, reducing the returns that investors can look forward to. The problem is most acute in the category of office buildings, which has received the biggest blow and is experiencing a spectacular drop in demand due to the shift of businesses to telecommuting. As Henry Lam, vice president of research at Preqin, points out, “investment opportunities that can provide a stable income stream and a clear investment exit are now very rare.” He points out that “market players tend to take a wait-and-see attitude until the picture becomes clearer about where interest rates are headed in the near future.”
In particular, the investments that are placed in North America took the lion’s share of the funds raised by the industry in Q3. Their percentage was, however, reduced to 70% from 81% in the previous quarter, according to Preqin’s report.
Between July and September, they raised just $18.2 billion, compared to $63.4 billion in the previous quarter.
He noted, on the contrary, an increase in the share of the wider region Asia – Pacific which reached 24% of the total, while as Preqin points out, Japan is now particularly attractive for investors as it continues to keep borrowing costs at extremely low levels.
As for the investment companies that focus their interest on the European real estate markets as well as the markets in the rest of the world, they attracted only 6% of the total funds in the 3rd quarter of 2023.
The said research company estimates that the uncertainty about how interest rates will be shaped will continue to be a major negative factor in terms of raising funds for investments in the real estate market and for real estate transactions. In the meantime, investors will continue to look for property classes or real estate markets that promise safer returns.
