US Markets Continue Their Price Discovery Journey

Inflation and higher interest rates are among the factors that will continue to weigh on investor decision making in 2023 as the US market continues a journey of price discovery, according to the latest Colliers Global Investor Outlook report issued this week.

The cost of building materials is rising, and labor shortages are prevalent, which is stifling housing development, for example.

Aaron Jodka, director of research, US Capital Markets, said in the report, “The U.S. is vastly under-housed and that is not solved in a short amount of time. This is especially the case in a higher interest rate environment.”

Q3 has shown markets in a price correction mode, with yields/cap rates moving out by up to 100 basis points.

Some markets, however, are yet to see any price correction, Colliers said, emphasizing that the timing of the “landing, stabilization and recovery” of each market and sector will differ markedly.

Overall, Colliers’ consensus is that the stabilization of the global real estate market will take hold by mid-2023 as more certainty emerges around the interest rate and economic outlook.

Liquidity Events Drive Decision-Making

There are low basis opportunities in the gateway markets of San Francisco, New York, Boston, Chicago, Los Angeles, and Washington, D.C., as liquidity events drive decision-making.

“This will allow buyers to reposition assets, through reinvestment or conversion,” David Amsterdam, President, US Capital Markets & Northeast Region, said in prepared remarks.

He said alternative asset classes such as life science are viable targets and conversions to assets within the broader housing sector are also gaining traction.

Niche Markets Driven from Major Cities

Sectors closely connected to changing demographic and economic realities, such as multifamily/build-to-rent, student, and senior housing continue to drive activity away from major cities.

And while core assets in top-tier global cities remain the preference, “this will continue to push investors into second and third-tier cities, particularly in American markets,” said the report.

Equity Allocators, Investment Managers Finding Opportunity Strategies

Colliers is surprised at the speed at which the equity allocators and investment managers are adopting credit opportunity strategies.

“They’re deploying across the capital stack, chasing what they perceive to be attractive relative risk/reward versus taking common equity positions.” Jeff Black U.S. Capital Markets Board of Advisors, Debt & Equity Lead, said in prepared remarks.