Top 10...

A year ago, the world remained in the grips of the COVID-19 pandemic and the Omicron variant had just emerged. 12 months on and the pandemic has largely subsided, only to be replaced by a brutal war in Ukraine and inflation reaching multi-decade highs. This prompted central banks to make aggressive interest rate hikes in 2022, with more expected in 2023, along with a mild recession in the economy.

Looking back to our 2022 predictions, in general they proved prescient. We expected hybrid working to weigh on the office market and that the polarization between the best and worst assets would continue, which has been the case. We expected retail capital values to bottom out, which they had started to, but are now likely to be impacted by weakening consumer spending. We said that property investors would no longer be able to rely on market-driven yield compression to drive returns, which has certainly proved accurate as the market adjusts to higher interest rates.

In 2023, the environment for real estate looks set to be more challenging, with headwinds coming both from higher interest rates and a weaker economy, which will impact on occupier demand. Against this backdrop, we look at 10 key questions for real estate investors at the turn of the year and how we would approach them. We address ESG questions in our separate publication.

To start with, we look at whether real estate prices currently fully reflect the move to higher interest rates and what prospects are for the market going forward. We also highlight opportunities for investors in the current environment, and what their strategy can be. We discuss how they can position their portfolios, and which sectors we think are the most defensive.

We then look at prospects for the life sciences sector against a backdrop of slower VC funding. This follows a period of strong growth in the sector and a lot of investor interest. We also dive into student housing in the US, another sector booming among investors, and what impact demographic trends might have on it.

In addition, we analyze how opportunistic and value-add managers will need to adopt their strategies now that interest rates are higher, and how their ability to generate out-size returns simply by adding leverage is gone.

So, a number of important topics for us and investors to consider. We hope you find our answers insightful and useful in determining your strategy and thinking about some of the key questions in real estate as we move into the new year.