Global Real Estate Returns Turned Negative
After the declines in many country and regional indexes in the third quarter of 2022, it is clear that commercial-property markets globally have entered a period of adjustment. Total returns at the global level turned negative for the first time since the COVID-19 decline of the second quarter of 2020, registering -0.1% in the third quarter, according to the MSCI Global Quarterly Property Index.
With global economic performance entering a slower period of growth and tighter monetary policy continuing to challenge real estate investors, the decline in capital growth was reflected across all property types. The office sector recorded the largest decline in capital growth, at -1.5%, and the industrial sector posted the largest shift, dropping to -1.1% in the third quarter, from 3.9% in the second quarter. The decline in the office market's capital growth mirrors the weakness in transaction activity for offices in the third quarter. Office deal volume fell globally by 42% year-over-year, compared to a 28% drop for all property types, according to MSCI data.
Wide range of performance
The decline in total returns at the global level masks a wide range of performance, with regional differences emerging. The majority of European markets recorded negative total returns during the quarter, with the U.K. the worst performer, posting a -4.0% decline. While the U.S. recorded a slight decline in capital growth during the quarter, returns have stayed positive, and all the Asia-Pacific markets continued to record positive returns, with no drop in capital growth.
Performance varied across countries
European Commercial Real Estate's Returns Show a Slowdown
European commercial real estate’s returns posted their worst performance since the 2008 global financial crisis in the third quarter. The results indicate that a widespread slowdown in Europe’s commercial-property market is underway.
Returns for Australian Commercial Property Ebbed
Australian commercial real estate returns decelerated further in the third quarter. Despite a sharp slowdown, the industrial sector was still the outstanding performer among the core sectors in the 12 months ended September 2022.
Examining UK Real Estate’s Worst Quarter Since 2009
The yield of U.K. real estate recently fell below that of the 10-year U.K. government bond for the first time since 2007. This evaporation of property’s yield premium led to the MSCI UK Quarterly Property Index’s worst return since 2009.
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