According to a study this week from RSM, real estate funds seem to be maintaining their path and accounting for a small overall cooling of the market.
The volume of sales transactions and associated cap rates realized in those transactions have both decreased, it was claimed, and fundraising is adopting the same mentality.
Since interest rate increases and inflationary pressures suggest that a possible impending recession may be imminent, investors are currently on the defensive and reevaluating values and strategy. RSM stated that capital is being directed toward core and core-plus assets, value-add investments, and less risky initiatives.
Real estate investment may have slowed down from its record-breaking rate in 2021, but prices are still significantly higher than they were before the pandemic, and there is still enough of money for investors to keep spending.
Finance Is Generally Affordable
According to RSM, property cash flow, particularly from multifamily and industrial properties, is still strong, and financing is still quite affordable.
According to the statement, “We anticipate transaction volume to pick up in the fourth quarter of 2022 or early 2023 as fund managers reevaluate their strategy and the return expectations of their investors, looking to deploy cash that has been sitting on the sidelines.”
Cap rate compression on a global scale
Even the “darlings” of the pandemic, multifamily and industrial, saw cap rates compressed.
Compared to an average reduction of 0.15% over the preceding three years, multifamily cap rates have decreased by 0.79% since the second quarter of 2020, according to CoStar.
RSM claimed that because of growing values, it has become harder for acquisitions to meet investment objectives.
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