World Savills IM prognosis for 2023

Latest Savills Investment Management global investor outlook report highlights how investors need to go back to basics and assess the fundamentals. While 2023 may prove challenging for all investors, in the context of global market turbulence, Savills IM sees select opportunities in asset classes with strong long-term fundamentals such as urban industrial and logistics, affordable housing and essential retail.

Savills IM identifies the threats to the near-term macro picture, the most notable being rising inflation, interest rates and recessionary risks impacting investment and occupier markets.

Interest rates will impact those with high levels of debt. Occupier markets are likely to experience instability, as reduced growth and the threat of recession increases the likelihood of occupier distress. However, those who prepare now will be well positioned to benefit when the next upturn arrives; those assets with strong income streams and robust ESG credentials are particularly inviting for investors.

In terms of sectors, Savills IM believes that affordable housing presents a long-term growth story, with strong demand, predictable yields and a compelling social impact. The public sector cannot afford to meet demand for social housing on its own, and the private sector is increasingly keen to help fund new developments, and improve existing stock, by working in partnership with housing associations and local authorities over the long term.

In Poland, the rental growth is underway especially for prime office, logistics and BTR sectors what offsets decompression of yields to an extent. This may benefit owners of existing assets which may outperform their baseline total return, in office markets facing supply gaps like Warsaw and core logistics or living markets. On the flipside the longevity of rental growth will be impacted by inflation-driven increase of operating costs, with greater pressure on landlords to counter it, possibly higher shortfalls and vacancies and reducing tenant affordability such as retail and BTR sectors. Provided no external disruptions, the inflation rate in Poland should plateau in 2023, but remain elevated due to high nominal wage growth, possible new social transfers in what will be an election year, low unemployment and gradual pull out from anti-inflation shields.
Lending market will remain tight and selective in 2023 both for funding new projects and refinancing loans taken in an era of low interest rates. This may open opportunities for alternative lenders.
On capital flows, I expect liquidity to be subdued in the next 6-8 months. Investors are wary of geopolitical backdrop and the uncertainty around the depth of the recession in the region. CEE or Scandinavian capital may replace more traditional investors from Western Europe, US or Asia benefitting from reduced competition for quality assets. Those who already have an allocation to the Polish market having entered early in the cycle say 5-7 years ago (e.g., in logistics) may want to explore exit as and when new price points stabilize.
Piotr Trzciński, Head of Poland, Savills IM