Headwinds slow transaction activity

Investor demand continues to target the living sectors globally, with robust fundamentals and still-strong operating performance driven by structural undersupply across asset types. However, higher financing costs, macroeconomic headwinds and uncertainty in the market mean that deal-making remains difficult, with wide bid-ask spreads on transactions. Investment volumes were significantly reduced across regions in Q1, as many investors maintained a ‘wait and see’ approach.

The U.S. living sector remains resilient despite rental growth easing and interest rates continuing to pressure transaction activity. Transaction volumes in Q1 2023 were down 65% from Q1 2022, although dry powder levels at record highs indicate a large amount of latent demand once financing rates begin to fall. Lagging supply and a slowing housing market further deepened the demand-supply imbalance across Europe, but challenging financing conditions resulted in additional declines in investment volumes. The Asia Pacific region continues to see growing interest in the living sector, although declining activity in Japan amid a thinning foreign buyer pool and widening bid-ask spreads helped push regional volumes lower.

Future trends: Structural undersupply to continue

Short-term: Construction costs remain stubbornly high, constraining the supply of new homes in many parts of the world. As a result, new housing supply continues to fall well short of global demand. Meanwhile, rising household energy bills are boosting demand for more energy-efficient new homes for sale and for rent.

Long-term: Heightened rental demand will remain a feature of many global housing markets driven by continuing urbanization. Global cities will fail to deliver the number of homes needed to meet this ever-growing demand, and affordability pressures will put homeownership further out of reach of an increasingly large section of society. This will underpin continued long-term house price and rental value growth.