Q4 2022 Investment Market Commentary

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change” – Charles Darwin

The fourth quarter of 2022 has been a quarter of reckoning. The gathering storm finally arrived and ‘drenched’ investors with trends we’ve discussed since the end of 2020. The tragically mismanaged mini budget acted as a catalyst for the acceleration of a long overdue correction.

This quarter we review the pain which is still to come in the private markets as they purport to resist the damage already present in public markets. We expect to see further declines as investors rightly question the logic that private valuations are not correlated with public equivalents.

The rapid rebasing of interest rates has unearthed issues across the real estate sector, with property yields rising in unison and the cost of debt causing investment volumes to plummet. In our Q3 report we forecast a decline in capital values by an average of 20%. Data released in Q4 by MSCI revealed the largest single month drop on record in October, with their UK monthly index falling 6.5%. Valuations look well on their way to hit our forecast decline in 2023.

We predict further volatility as markets continue to adjust to the “old normal” where interest rates do not return to historic lows and liquidity becomes more scarce. Valuations will correct as vendors expectations will have to adjust, closing the gap currently present between purchasers and sellers.

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