While effects from the pandemic have receded in most parts of the world other headwinds have appeared and strengthened in the second quarter. Inflation accelerated sharply for a number of reasons including the war in Ukraine, sanctions against Russia, Covid restrictions in China and ongoing supply chain disruptions. This triggered an accelerated tightening cycle by central banks. These are all feeding into heightened uncertainty and are dampening sentiment. Decision-making processes are lengthening as occupiers take a ‘wait and see’ approach. On a positive note, labor markets are continuing to perform strongly and pent-up demand from the pandemic is still helping to support activity. For investors, the increasing cost of debt and inflation are impacting pricing and bidding dynamics around the world.
Global office leasing volumes held stable over the quarter, but this bucks the pre-pandemic trend where the second quarter would usually show an increase on Q1. Additionally, while global net absorption remained positive in Q2 it was down 89% over the quarter. In the logistics sector demand remained strong and is becoming more broad-based as ecommerce occupiers play a less dominant role in the market. Leasing activity in the retail sector was robust across many mature markets despite a weakening sales outlook and rising costs.
The impact of the economic climate and rising rates is being felt globally at mid-year in the capital markets, reflected in investor selectivity and the slowing pace of growth in the direct investment markets. During this new phase of price discovery, the bid-ask gap is widening in the transaction market, and bidding intensity is moderating. Debt markets are liquid, but more cautious amid increased scrutiny on underwriting assumptions.
Looking ahead, incremental rate changes will introduce additional price discovery in the markets. However, the continued depth and diversity of lenders and investors is expected to mitigate the risk of a deeper, prolonged impact on capital flows in real estate.
In recent years, in the Republic of Moldova real estate sector as a whole has seen positive property price developments. Despite rising asking prices, the purchase of a property is very attractive for investors and owner-occupiers. This is reflected in the transaction volume for residential and commercial real estate, which is forecast to continue to grow in 2022.