• 82% of real estate investors expect to see a rise in distressed assets coming to market
  • 69% expect residential real estate to post the strongest gains over the next two years, ahead of central business district-located offices (56%) and food-anchored retail parks (49%)
  • Auxadi launches second annual real estate outlook report

Real estate investors expect this year’s tougher economic headwinds to result in more distressed asset sales, more expensive debt and capital shifting to safer assets with more predictable cashflows, according to a new study1 published by Auxadi, a leading provider of accounting, tax and payroll services to private equity, real estate and multinationals.

Over four fifths (82%) of real estate investors expect to see a rise in distressed assets coming to market, up 15% on last year, with interest rate hikes and cost pressures mounting set to take their toll.  Almost as many investors (81%) predict a reallocation of capital to commercial sectors with safer cashflows such as medical facilities, self-storage and industrial) and 79% flagged the rising cost of debt, up 22% from 2021, the biggest year-on-year. Deal flow was the second largest riser after the cost of debt, up 21% on the previous year to 75%.

The study also reveals where real estate investors expect to see the biggest opportunities. Over two-thirds (69%) of real estate investors expect the residential sector to post the strongest gains over the next two years, ahead of central business district-located offices (56%) and food-anchored retail parks (49%).

The residential sector has seen the biggest post-pandemic bounce in sentiment in the past 12 months – up from fourth place last year scoring just 30% – with investors recognising that the sector’s long-term structural supply-demand imbalance has gathered fresh momentum.

After a record-setting year in 2021 where the logistics sector made up nearly a quarter of all commercial real estate investment globally2, it has registered the biggest drop in performance expectations, down 26% from 54% to 28%.

The report, ‘Real estate: balancing new risks and opportunities in a changing investment landscape’, is the second annual outlook commissioned by Auxadi, and was based on interviews with 100 senior-level real estate fund based in the UK, Continental Europe and North America with average assets under management of €14.5 billion.

Real estate investors expect food-anchored retail parks to see the biggest improvement in fundraising sentiment, up 16% from last year to 87%, benefiting from the post-pandemic shift in consumer shopping habits, ahead of the alternatives sector (83%), supermarkets (81%) and residential (81%). One of the biggest casualties of Covid-19, the high street retail sector, is expected to attract more fundraising over the next two years, up 21% from 2012 to 80%.

Rima Yousfan, Head of Funds at Auxadi said: “Given the worsening economic climate exacerbated by the war in Ukraine, rising inflation and volatile markets, real estate investors are showing a more bearish outlook with distressed asset sales, a flight to capital safety and slower deal flow as key trends for the year ahead. 

“Our research also highlights how the real estate industry is continuing to adjust its outlook as the pandemic subsides with renewed support for central business district offices and retail parks as well as a strong vote of confidence in the residential sector.  While the logistics sector will continue to benefit from the rise in e-commerce and tighter supply chain management, investors may be concerned about how valuations have risen.  

“Over the past 12 months we’ve seen a significant increase in the number of real estate investment firms outsourcing more of their operational functions, such as SPV administration or their accounting and tax, to third parties in order to focus their efforts on finalising acquisitions and we expect this to continue as these firms take advantage of the attractive investment landscape.”

Real estate: balancing new risks and opportunities in a changing investment landscape

To view a copy of Auxadi’s ‘Real estate: balancing new risks and opportunities in a changing investment landscape’ report, please visit: Real estate: balancing new risks and opportunities in a changing investment landscape – Auxadi

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Notes to editors

1 Research conducted by Pure Profile among a panel of 108 senior-level real estate investors in May 2022. Respondents were split evenly between the UK, Continental Europe and North America

2 “Can real estate’s hottest sector stand the heat in 2022?”, published by JLL on 5th January 2022

Local Knowledge – International Coverage

Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.

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Sam Stewart
Citigate Dewe Rogerson
samantha.stewart@citigatedewerogerson.com

Chris Jarvis
Citigate Dewe Rogerson
chris.jarvis@citigatedewerogerson.com

All information contained in this publication is up to date on 2022. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice.No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.