Almost half of APAC’s outbound investment activity is expected to remain in the region, while EMEA is the top draw for inbound capital.

In this deep dive into regional capital flows we cover:

• The top five destinations for capital in 2023
• The best-performing sectors in each region
• Where inbound and outbound investment will flow from

APAC | Europe | Middle East | North America

APAC

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Australia

Australia is forecast to be a top-five destination for capital in 2023, although inbound volumes could moderate.

Australia’s office sector could attract more than half of these volumes with US, Singaporean and Canadian Capital as the top three sources. Investment managers, Listed/ REITs and Institutional capital are forecast to lead the activity with additional input from Private Equity, Banks, Sovereign Wealth funds etc.

Greater China

The market will continue to see significant interest within the hospitality, industrial and data centre sectors in 2023. Despite the quarantine requirements, the hospitality sector has corrected appreciably and is attracting interest from value-add investors who convert these premises into co-living/long-stay accommodation. Many of these investors are offshore funds, some of which have had limited investment exposure to Hong Kong.

With the border expected to open shortly, these properties could be operated as hotels. In addition, the industrial sector is buoyed by a lack of supply and strong demand for logistics warehousing brought on by Covid-19. The data sector, again with its limited supply, will also attract investor interest.

Conversely, the office and retail segments will remain subdued in the next 6-12 months. The office market with negative occupier take-up and increasing supply is experiencing growing vacancy and falling rents and has been shunned by many investors. Sales will continue to compose mainly of strata-title and distressed assets. The retail sector, which relied heavily upon the tourist sector, has fragmented.

Community retail has adapted while high street and prime retail will continue to face headwinds.

In the Chinese mainland, capital restriction has remained in place amid stringent approval procedures. The concern on debt issues will continue to disincentivise inbound capital from overseas in the next 12 months.

The silver lining is that some Hong Kong based developers and investors have recently expressed interest in developing real estate and infrastructure projects in the mainland over the next few years. There are also early signs that the Chinese government is allowing banks to relax credit control in some cities, which will encourage capital inflow over a longer term.

India

With a large pool of highly educated talent and burgeoning tech and service industries, India has seen rapid growth in cross-border activity over the past decade. Global economic headwinds could keep cross-border investment volumes for 2023 similar to those of 2022.

Again, attracted by the prospect of returns and a structurally evolving market, we expect a broad range of investors, notably from Singapore, Canada, the US and UK, to target the office, industrial and residential markets in particular.

Japan

The original ‘lower for longer’ location, Japan has contended with lower growth and low-interest rates since the asset price collapse in the 1990s which translated into a deflationary decade. The country offers significant lessons for realigning return expectations and investing in a long-term lower-return environment.

In the face of economic dislocation, Japan has uniquely resisted the elevated inflation and interest rates seen elsewhere and is expected to keep relatively competitive swap rates over the year ahead, offsetting some of the effects of relative currency weakness.

As a result, we could see an above-average level of capital being deployed by a broad range of Japanese investor types in 2023 with an increased focus on Europe, particularly the office sector in the UK. However, almost half of capital is expected to be deployed within Asia Pacific across Australia, Singapore and Malaysia across the office, retail, industrial and hotel sectors.

Singapore

In 2023 Singapore is expected to be a top-five deployer of capital globally, supported by the relative Singapore Dollar strength against both the Euro and Sterling, even if a softening against the dollar could mean a reduced focus on the US and Canada compared to recent years.

Outbound volumes could moderate from recent levels. Singapore an institutional capital in particular is expected to focus on UK residential and student housing, as well as the office and industrial sectors in locations including the Netherlands and Germany.

For inbound capital, Singapore is forecast to attract capital from the US and across the APAC region, with a focus on the office, Industrial, Hotel and Retail sectors.

Singapore expected to be the top source of APAC capital in 2023

Europe

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France

France could see an especially diverse range of investor types and locations with the office sector forecast to contribute almost half of volumes.

With potentially challenging prime yields relative to swap rates in the safe haven Paris market, we expect a wide range of US and Canadian investors to take advantage of the relative strength of their currencies as well as a broad range of Middle East investors. The industrial and retail sectors could each contribute just over 20% of inbound volumes in 2023 with hotel, residential and Student Housing also attracting interest.

Germany

Germany is forecast to remain a top-five destination for capital this year, with investors looking for safe haven locations, relative liquidity and potential pricing shifts. We forecast that investors will target the full range of sectors, with a particular focus on office, industrial and residential.

Institutions, Investment Managers and Private Equity are expected to be the top three investor types, from not only the US, UK and other European locations, but also from further afield including Singapore.

Germany is also forecast to be a top five deployer of capital with a focus on the office, retail, residential and industrial sectors across Europe, the US and Japan.

Spain

Spain’s relatively positive macroeconomic outlook is likely to attract capital across sectors, with US PE expected to be the top source of capital. While appetite is expected to be strong for the growing living sectors, the larger, established office sector is forecast to attract up to 40% of inbound activity over the year ahead.

UK

We forecast that the UK will rank second for capital deployment in 2023. While overall inbound volumes could moderate, a depreciated currency, relatively attractive yields compared to core mainland European locations and its liquid, safe haven properties should all support its position.

The office sector is expected to contribute over half (52%) of volumes but interest is expected to cover a broad spectrum and come from a wide range of investors in the US and Canada, the Middle East and core European locations with Japan and Singapore also showing interest.

In London, liquidity is very important for investors. Outside of London, property companies are expected to remain particularly active, especially for repurposing.

Retail could see volumes hold up following several years of rebasing, right sizing and headwinds in the sector and all sectors, residential, industrial, hotel and student housing, as well as more nascent sub-sectors such as Life Sciences and Data Centres, are expected to attract capital.

CEE

The physical proximity to the Ukraine/Russia crisis, double-digit inflation and higher country risk premia than elsewhere in Europe means the CEE region has a particularly uncertain year ahead. Taking into account base case economic and financial forecasts, our model predicts Poland’s office sector to be the top CEE destination for capital in 2023 at levels ahead of the long-term average, if not a return to 2019.

Local investment managers from Czechia, Hungary and Austria, as well as a broad range of German investors could be attracted to the sector, looking to benefit from the region’s relative liquidity and yields and some investors may move up the risk curve to find returns ahead of lending rates.

While investors are predicted to make a return to the bread and butter office market, the industrial sector in markets including Poland and the Czech Republic will also see interest from a range of US investors hunting for opportunities.

Offices in locations such as Romania, Hungary and Lithuania are also predicted to remain on the radar along with European investors from Austria, Greece, the Czech Republic and Sweden who are already familiar with the market.

Middle East

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The recovery and acceleration of oil prices have resulted in an increase in outbound capital since 2020 and this is expected to increase further in 2023, reaching the highest levels since 2016, driven by institutions based out of Kuwait, Saudi Arabia, Qatar and Bahrain, as has been the case historically.

At the same time, domestic investment by the region’s governments is quickly eclipsing pre-Covid levels, with healthcare, education, transport infrastructure, industry and manufacturing, hospitality and new mega-cities all taking centre stage. Indeed, the government of Saudi Arabia is rapidly progressing with plans for its new $500bn super-city, NEOM, with an $80bn local IPO expected in 2024. Meanwhile, Dubai’s Nakheel has revived its 17 square kilometre Dubai Islands project, which is expected to house 80 hotel resorts on completion.

Separately, we could see the proportion of outbound investment from the region’s High-Net-Worth-Individuals (HNWI) increase significantly.  

Institutions and investment managers are forecast to be active, especially those from Kuwait, Saudi Arabia, Qatar and Bahrain, with capital deployed to the UK and US foremost but also to Germany, Australia and France, across the broad range of sectors.

Cash investors in particular may look to take advantage not only of currency benefits but also of the diversification benefits of real estate in a less competitive market caused by debt costs.

Top 5 EMEA destinations for capital forecast in 2023 

1. United Kingdom
2. Germany
3. Netherlands
4. France
5. Spain

55% of inbound global capital is destined for EMEA

North America

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US

The US and Canada are forecast to be the main deployers of capital in 2023. Both feature a strengthened currency and a broad range of investors eager to diversify their portfolios and target liquidity across a wide geographical and sector range. The UK, Germany, Netherlands, France and Japan are forecast to be top destinations for US capital, particularly institutional, as well as Investment managers, Listed / REIT and Private equity.

The top two sectors of UK interest for the US are expected to be the office and residential (including student accommodation) sectors, each with a 29% share, followed by the retail, industrial and hotel sectors.

In France, we expect US activity to be led by private equity flowing predominantly into the office and industrial sectors, while in Germany, institutional capital could focus on the office, retail, residential and industrial sectors.

Canada

We expect 61% of Canadian capital to head to the US office and residential sectors, each receiving 24%, followed by 19% to both the retail and industrial sectors.

This deployment will be led by Canadian institutions, Listed/ REITs and Investment Managers. The UK, Germany, Australia and France are also in the top five destinations for Canadian capital and among the broad range of sectors to benefit, we anticipate a focus on the UK office and residential sectors.