Most Global Property Markets Posted Negative Returns

The results of the MSCI Global Quarterly Property Index for the fourth quarter of 2022 confirm what a host of market index results have demonstrated: Commercial property has moved into a cyclical downturn, the length of which is as yet undetermined. The negative rate of return accelerated to -3.8% in the fourth quarter from the -0.1% in the third quarter, as more markets recorded negative results.

Eleven of the 15 markets in the index posted negative returns in the fourth quarter, compared with seven in the prior quarter. Asia-Pacific markets were the outliers: Australia, Japan, South Korea and Singapore remained in positive territory even as many faced the same challenges seen in other regions, such as higher debt costs and a pullback in tenant demand.

Capital growth the culprit

A severe drop in capital growth, primarily driven by yield expansion, was the main driver behind the acceleration of negative returns. Although not as steep as the adjustments witnessed during the 2008 global financial crisis, capital growth has dropped a cumulative 6.6% in the last two quarters.

All the property sectors in the index showed a negative return, the first instance of a coordinated downturn since 2009. Offices and industrial, the two major components of the index, were the biggest losers during the quarter, after the hotel sector, which posted a negative 5.2% total return.

The volume of commercial-property transactions also weakened in the final quarter of 2022, with a wait-and-see approach pervading almost every major investment market. Global transaction volume dropped by more than 60% in the quarter compared with a year earlier.