The US market stands strong against the world

Despite a drop in value of 600 billion dollars in the world, the USA is in first place by a large margin, according to an analysis by MSCI.

Macroeconomic factors, mainly rising inflation and raising interest rates, took their toll on commercial real estate around the world last year. The size of the professionally managed real estate investment market fell 4.1% from $13.9 trillion in 2021 to $13.3 trillion in 2022, according to the latest MSCI Real Estate Market Size report.

The Americas continued to represent the largest share of the professionally managed market at 43.9 percent, followed by Europe, the Middle East and Africa at 30.4 percent and Asia Pacific at 25.7 percent. The report states that America's market size increased slightly by 0.6% to $5.9 trillion. The market size in Europe, the Middle East and Africa decreased the most by 9.8% to $4.1 trillion while the APAC market decreased by 4.6% to $3.4 trillion.

For the first time, MSCI estimated the total market size for investment at $19.5 trillion.

"The speed and intensity of the interest rate movements have comprehensively changed the investment environment, and resulted in a dramatic decrease in transaction volumes over the past 12 months," said Rene Wirman, head of real estate assets at MSCI, in the introduction to the report. .

Wierman said the decline in activity felt more intense because it followed a 2021 peak, when the US in particular saw a surge in transactions with an 8.1 percent increase from 2020 during the peak of the pandemic.

Since the second half of 2022, MSCI has recorded declines in transaction volumes of more than 50% in all three global regions. However, Wierman noted that valuations have been adjusted at different speeds from state to state. He stated that the UK led the price adjustment followed by continental Europe. The US and Asia Pacific lagged behind, especially the Asia Pacific region which is only now beginning to see signs of a valuation change.

The report also states that currency played a role in the decline in market size. The overall currency effect showed a decrease of 4.6 percent. MSCI noted that the US dollar strengthened against most global currencies in 2022, except for the Brazilian real and the Singapore dollar. The currency effect was the greatest for the Swedish krona, down 13.1% against the US dollar, and the Japanese yen, down 12.7% against the dollar.

Global commercial real estate markets, one by one

The MSCI analysis covers 37 markets - three from the Americas, 23 from Europe, the Middle East and Africa and 11 Asia Pacific countries. The US remains the largest market by far, with a size of approximately $5.4 trillion, followed by China at $990 billion. Japan overtook the UK in 2022 to become the third largest market ($886 billion), $5 billion more than the UK ($881 billion). Germany rounded out the top five ($793 billion). These five markets accounted for about 67% of the professionally managed real estate markets and the top 10 countries accounted for about 84%, according to MSCI.

The report stated that the decrease in the total size of the UK market was due to a sharp decline in the performance of the industrial sector in the second half of 2022.

One of the other big changes in the top 10 ranking for 2022 was Hong Kong moving to eighth place ($428 billion) ahead of Canada ($403 billion) followed by Switzerland ($355 billion). The other top 10 markets for 2022 were France in sixth place ($610 billion) and Australia in seventh place ($477 billion).

MSCI stated that 10 of the 37 markets tracked, which account for 58 percent of professionally managed real estate markets worldwide, increased in weight for 2022, while the remaining 27 markets had declines.

The decrease in the volume of transactions due to the economic winds around the world also affected the turnover ratio. The report noted that the global average turnover ratio for 2022 was 8.7 percent compared to 10.0 percent in 2021.