- Savills IM’s recent Global Investor Prospects survey highlighted that 2022 could mark a tipping point for offices and retail, although beds and awnings remain the preferred sectors.
- Nearly three-quarters of institutional investors expect real estate allocations to increase in 2022
- 82% of the investors surveyed believe that climate change will affect their investment strategy
Savills Investment Management (Savills IM), director of international real estate investment, has published its latest forecast report for the real estate investment markets in 2022.
While the coming year may mark a turning point for both office and retail investment as the world continues to recover from the COVID-19 pandemic, sectors such as living, logistics and real estate debt also present compelling opportunities.
Although there are a number of geopolitical and macroeconomic opportunities and risks ahead in 2022 — from major elections across Europe, tensions between the United States and China, to global supply chain disruptions — inflation looks set to be the biggest challenge investors have to contend with. . More than four-fifths (82%) of survey respondents highlighted inflation as the biggest threat to real estate investment in 2022, before the economic downturn (68%) and other potential restrictions of COVID-19 (66%).
Despite the challenging background, the survey of global investors showed a significant increase in the appetite for real estate in 2022. Nearly three quarters (73%) of survey respondents expect to increase their investment in real estate in the next 12 months, compared to 45% last year .
One of the driving factors behind this renewed confidence is that 74% of investors believe their investments have done well in the wake of COVID-19 compared to a “normal” year, with 72% stating that performance has been better than expected.
The vast majority of participants expect the volume of investment to rise again in 2022. Despite its close proximity to the top, “Beds and Umbrellas” lead the way by a narrow margin. However, participants also see growth potential in the retail and office sectors, indicating hope for a slow return to some kind of normality.
Savills IM believes that retail is unfairly considered a single entity. As a result, 2022 could be a turning point for the sector as many investors overlook opportunities in food retail, retail complexes, factory outlet malls or in rearranging assets to create alternative use value.
The report also found that investor confidence is on the rise, and will continue to climb up the risk curve in 2022. Value-added strategies are expected to thrive in the coming year with 63% of respondents highlighting their preferred investment style. Investors also highlighted co-investing (62%) and opportunistic opportunities (58%) as an attractive investment approach for the coming year.
Environmental, Social and Governance (ESG) issues are likely to continue to dominate the investment world in 2022 as governments and companies embark on their paths towards a carbon neutral world. More than four in five respondents (82%) in our survey believe that the current focus on climate change will have an impact on their investment strategy. The vast majority of investors surveyed (79%) also expect that there will be a significant increase in demand for green-labeled properties over the next 12 months, with 26% anticipating a significant increase.
Kiran Patel, Global CIO and Global Executive Vice President, Savills IM commented:
“Looking ahead to the year ahead, we believe beds and canopies will continue to be popular. With low returns in industrial and logistics real estate, investors have no choice but to think outside the big funds and invest in promising sub-sectors such as urban and last mile logistics, light industrial parks, and cold warehousing. We anticipate polarization in the office market with strong investor focus on prime properties.
“In the residential sector, scalable and operationally light sectors such as multi-family and purpose-built student housing (PBSA) and healthcare assets promise appropriate risk-adjusted returns.
“Debt investing continues to provide attractive risk-adjusted returns with downside protection. Being at the lower end of the capital pile, in today’s environment of global supply shortages, rising inflation and growing real estate obsolescence due to climate adaptation, debt allocation can be a Real estate is an attractive option for long-term investors.
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