Economic turmoil curbs growth of living sectors

Investment in the living sectors moderated in Q4 as investors adopted a ‘wait and see’ approach. However, structural factors such as a global undersupply of housing will help to support the sector over the longer term.

The exceptionally strong residential rental growth recorded in the U.S. during 2022 slowed to 6% year-over-year in the final quarter and is expected to return to average levels of growth as new supply comes to market in 2023 and 2024. Investment into U.S. multifamily declined and cap rates have expanded by around 100-150 bps since their peak in Q1 2022. Across Europe, house price growth eased or began to fall as mortgage rates increased and sentiment declined, while transaction volumes also softened in the region during the fourth quarter. Bucking the trend, Asia Pacific multifamily investment volumes bounced back, with China particularly active.

Future trends: Supply shortages to support rents

Outlook for 2023: A slowdown in new housing construction and drop in building permits are expected to deepen housing shortages in many countries across the world, with population growth continuing to outpace growth in new housing supply. A divergence in construction output is anticipated in 2023 with most markets seeing a fall in supply, but some countries will adapt faster and emerge as relative winners.

Long-term: Despite the cyclical macroeconomic effects putting home prices under pressure in the short term, deepening housing shortages and strong fundamentals will continue to drive real price growth in the longer term. This will lead to record high rental demand and long-term rental growth which will continue to support investors’ appetite for the various forms of rental housing. Affordability of household energy will remain a fundamental issue for tenants.