Global capital flows weaken further during first quarter

Continued uncertainty and elevated borrowing costs are inhibiting transaction markets, which require further price discovery. Asset pricing around the world has already adjusted over the past 12 months, led by the U.S., which has seen significant adjustments from peak values in early 2022. In Europe, the UK experienced the greatest adjustment in pricing in 2022. More markets in Europe and Asia are now seeing yields shift.

Global direct investment experienced a slow start to the year, with Q1 volumes softening 56% year-over-year to US$128 billion. Over the trailing 12-month period, global volumes have declined 35% compared to the prior 12-month period. The first quarter represented the slowest quarter of investment activity since Q2 2020, the depths of the pandemic, and the slowest first quarter since 2012. During this period, as institutional investors remain cautious, there has been more activity involving private capital as well as in smaller deal sizes.

M&A activity in real estate is also limited and situational, with select strategic and private deals closing globally. While market dislocation is elevated and liquidity constrained, lending and transactional markets remain active. This is supported by capital on the sidelines with dry powder in closed-end funds now at US$389 billion globally, although fundraising has meaningfully slowed and is more challenging. With that said, risks remain elevated in the economy.