Investment activity
RENTS
capital values
INVESTMENT
ACTIVITY
Real estate investors are looking forward to a more positive 2024, with recovery predicted across key parts of the global property market.
The outlook is for increased activity on the back of more attractive yields, with prime rents rising and repricing starting to re-align buyer and seller expectations.
However, this wider view encompasses significant regional and sector variations. The six charts below highlight key aspects of this recovery and set out Savills top investment picks for the year ahead.
These charts are based on our annual survey of Savills global research experts, who provide their investment outlooks and top tips for the coming year.
expect prime office investment to rise in 2024
52%
expect capital values in the living sectors will increase next year
85%
expect logistics rents to grow further
72%
Q3 2023 prime office and logistics yield and outlooks for 2024
Ongoing discrepancies between buyer and seller expectations are likely to continue to push yield corrections further next year across sectors and regions.
Respondents expect prime office sector yields to increase in many major global cities, including New York, Sydney, Shanghai, Mumbai, Paris, Frankfurt and Dubai. However, with interest rates now peaking and a more positive outlook for investment activity, yields should gradually stabilise following these adjustments.
An upward pressure on yields is also expected in all logistics and manufacturing hubs across US, Asia and Europe, except Dubai, Singapore and Tokyo, which continue to deliver solid cash-on-cash returns to investors.
Global investment recovery timeline
After a couple of years of depressed activity, the recovery looks likely to be a gradual process, with momentum rising in the second half of 2024.
There is consensus that the weight of the recovery in global investment will occur in the third quarter, driven by a number of major markets – including the US and the UK.
The prime hotel and retail sectors in tourist destinations in Southern Europe, Singapore and Australia present significant opportunities, as do the residential sectors in cities in Japan, Singapore, Germany, Spain, Italy and the UK, where supply cannot meet rising demand for rental accommodation.
A key theme for value-add strategies is office or retail space with the potential to be retrofitted or repositioned for higher rental returns. Repositioning of retail in southern Europe and Asia represents a significant value-add opportunity – as does repositioning of offices in prime locations in the Netherlands, Spain, Japan, South Korea, Australia, France and Germany.
Those looking for more opportunistic investments may want to look at properties offering the potential for development and repurposing. This might involve repurposing offices into living and hospitality facilities, or reformating old shopping centres.
Strong drivers of demand and limited supply underpin the considerable investment potential of smaller and less liquid sectors such as data centres, life sciences and education.
Top sector picks by investment strategy
UNITED STATES
LOS ANGELES
5%
8%
Rising strongly (+5% and above) Rising (+2% to +5%)
Rising modestly (0% to +2%)
Unchanged (0%)
Falling modestly (0% to -2%)
Falling moderately (-2% to -5%)
Falling sharply (-5% and below)
Strong fundamentals are underpinning rent rises in the living space and logistics sectors, creating a particularly positive outlook for “beds and sheds” investors.
90% of respondents across the globe expect rent rises in the multifamily sector – the “block” housing units providing accommodation for students and older people, among others – with 81% forecasting rent increases across the wider residential market.
Resilient consumer demand and an expanding post Covid-19 manufacturing base also support future rent rises in the logistics sector. 92% predict that rents will rise or remain stable.
The picture is more mixed in the office and retail sectors, however. The majority of respondents expect increases in prime real estate rents, be it prestige office space in city centres (73%) or quality retail outlets with strong domestic or tourist footfall (81%). Asia Pacific prime retail is the only market segment for which no rental falls are anticipated.
Meanwhile, in the secondary office market, 70% of respondents expect rents to remain stable or drop in the year ahead. Any rent rises will be dependent upon upgrading these properties.
Rents
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Globally, capital values are expected to decline over the coming year, due to a number of factors, including the impact of higher interest rates and continued economic uncertainty.
Property prices are also being hit by changing occupier preferences and increased demand for energy-efficient buildings. Local demand and supply dynamics also play a part – with higher vacancy rates in the office markets of China and the US.
The outlook is particularly downbeat in Europe and the Middle East, where significant price declines are projected across all sectors. Capital values look more resilient across the Asia Pacific region, particularly in the residential, retail and logistics sectors.
Capital values
UNITED STATES
NEW YORK
5%
UNITED STATES
NORTHERN NEW JERSEY
5%
UNITED STATES
CHICAGO
6%
UNITED STATES
HOUSTON
5.75%
AUSTRALIA
SYDNEY
5.3%
5.25%
CHINA
Shanghai (Lujiazui)
4.5%
4.75%
CHINA
HONG
KONG
1.7%
3.8%
SINGAPORE
singapore
3.32%
6.35%
JAPAN
Tokyo
2.6%
3.3%
SOUTH KOREA
Seoul
4.05%
5.3%
Paris
4%
4.5%
FRANCE
SPAIN
MADRID
4.65%
5.05%
UNITED ARAB EMIRATES
dubai
7.25%
7.5%
UNITED KINGDOM
LONDON (CITY)
5.25%
5.25%
Netherlands
Amsterdam
4.5%
GERMANY
COLOGNE
4.2%
INDIA
MUMBAI
8.25%
GERMANY
FRANKFURT
4.3%
80%
0%
20%
40%
60%
Q1 2024
Q2 2024
Q3 2024
Q4 2024
Q1 2025
Q2 2025
5%
Share of global investment recovering to long trend
Investment recovery timeline
Despite the challenges in the sector, prime offices remain our top pick for core and core plus strategies, especially across the Asia Pacific region, closely followed by prime logistics across most markets.
Prime
offices
Grade B
offices
The outlook for global property is becoming more positive. Investment activity is expected to rise moderately or remain unchanged across most property sectors in Europe and the Middle East next year. Only a small minority of respondents expect activity to decline, so the worst of the contractions caused by rising interest rates appears to be behind us.
There is most optimism about activity in residential markets, particularly the multifamily sector, where demand outstrips supply in many areas. Buoyed by strong fundamentals, the logistics property market also looks set to perform well in 2024.
It’s a more mixed outlook for offices, however, especially outside the prime sector, where 16% of respondents expect investment activity to decline next year.
Overall, 5% to 10% of respondents anticipate a strong rise in investment activity. We believe this will be driven primarily by prime purchases, alongside opportunistic investments in distressed assets that are expected to come to market.
Industrial and
logistics
Retail
Residential:
individual
Source: Savills Research
Prime office yield Q3 2023
Prime logistics yield Q3 2023
Indicates outlook for 2024
United states
LOS ANGELES
8%
5%
0%
60%
40%
80%
20%
-40%
-20%
-60%
100%
Outlooks for 2024
Source: Savills Research
Source: Savills Research
Source: Savills Research
Sentiment, share of respondents
Share of picks across investment strategy
Click on the yellow dots
Residential: multifamily, senior, student
2%
74%
4%
14%
1%