Savills: Global residential investment outstrips offices, but retail may see 2022 return & industrial growth set to continue

In an update to Impacts, its global research programme, Savills says that in the 12 months to November 2021 global real estate investment volumes rose 38% on the same period in 2020 to US$1.3 trillion. The number of funds targeting real estate also reached new heights as investors sought to diversify income streams: 1,250 real estate funds targeting $365 billion in capital between them were identified in 2021, according to Preqin data, up from the approximately 1,000 funds that were active in 2020.

According to Savills, while global investment in the offices sector remains below pre-pandemic levels, volumes in the highly sought-after industrial sector rose 54%; this is likely to continue throughout 2022. Residential (namely multifamily, but also student and senior housing) became the largest sector for investment globally in 2021, overtaking offices for the first time. The international real estate advisor says that investors are increasingly attracted to residential's secure, income generating qualities, robust underlying demand, and resilience against technological disintermediation, but while strong activity will continue in 2022 a dearth of standing stock means that development will be the entry point for many.

Rasheed Hassan, Head of Savills Global Cross Border Investment team, comments: "The initial shock of the pandemic wore off in 2021. Given the record volume of capital many investors were sitting on, an increasing number of groups began to deploy once more, targeting largely core and income-producing assets including industrial distribution, prime offices and residential, but we also witnessed a very strong demand for development and repositioning opportunities. One 2022 headwind is inflation, but this may be temporary; some sectors of real estate in fact can be a good hedge against inflationary pressures, particularly in the case of assets with shorter lease terms or where rents are index linked."

Paul Tostevin, Director in the World Research team, adds: "While the stats show offices were less loved than residential last year, despite the multitude of headlines about ecommerce growth they still made up a greater proportion of the global market than industrial. With cross border investors, particularly in Europe, focusing on ESG strategies in 2022 we're likely to see opportunities to redevelop, reconfigure and repurpose office stock into high-performing sustainable assets, while in much of Asia and the Middle East the office is still very much the backbone of working life. Retail bricks and mortar, while maligned in some markets, is still at the heart of the consumer experience in China, for example, even with its extremely high online penetration rate, while in the West, pricing of some assets now looks competitive and 2022 may see more opportunistic investment in the sector."

Savills sector themes for global real estate investment in 2022:

• 2022 will be a turning point for retail, with repricing of recent years making the sector more competitive, at a time when retailers have better adapted to new ways of shopping. In much of Asia and in emerging markets, retail remains very much a core opportunity.
• There is potential in logistics in places where on-shoring brings supply chains closer to home. Logistic sub-sectors such as last mile have further to run.
• In the liquid and established office sector, the flight to quality will continue. Competition will be focused on assets that meet emerging environmental standards, while there is potential to redevelop or repurpose those that do not.
• The residential sector's rise will endure, a shortage of suitable stock driving forward funding strategies. There is potential in secondary cities as occupiers seek more affordable, liveable places.
• Ageing populations and an emphasis on health and wellbeing will support expansion in healthcare and senior housing, benefitting from long-term income potential.
• Data centres offer opportunity for portfolio diversification and there remains room for growth. Investors will be increasingly mindful of this sector's substantial environmental footprint, however.
• Life sciences offers significant potential for those with the know-how, with halo benefits for surrounding uses in knowledge hubs.