Real Estate

A Bumpy Path Ahead for U.S. Real Estate

November 2022 – 6 min read

Given how robust underlying economic fundamentals in the U.S. currently are, real estate performance could weather a mild downturn—but the near-term outlook has dimmed. The Barings Real Estate team sheds light on what's next for the asset class.

  • September’s CPI data highlighted the need for the Fed to remain vigilant over restoring price stability. Core YoY inflation accelerated to a 40+ year high of 6.6%.
  • The current health of underlying economic fundamentals is one of the reasons behind the speed and intensity of Fed rate hikes. There are indications that monetary policy is slowing the economy.
  • The U.S. economy is not yet in recession with third quarter GDP growing at a 2.6% annualized, seasonally-adjusted rate. Investors are bracing themselves for a downturn as the risk of recession over the next year rises.
  • Robust underlying economic fundamentals means property performance could weather a mild downturn without falling to perilous depths.
Property Market
  • Third quarter transaction activity totaled $172 billion across major property types, a decline of 21% over the prior year, reflecting elevated uncertainty in the macroeconomy.
  • Apartment, industrial, and retail sales activity declined 17%, 18% and 9%, respectively, while hotel and office registered transaction volume declines of 21% and 33%, respectively.
  • The rapid climb in base rates as exemplified by the 10-year Treasury yield has been the driving force behind the rise in real estate debt costs, which are at their highest in over a decade.
  • Real estate investors should take comfort that as we may be transitioning to a “higher-for-longer” interest rate environment, real estate performance remains still correlated with secular demand tailwinds that were active well before the pandemic.


Want to read the full article?

View PDF

Dags Chen, CFA

Head of U.S. Real Estate Research & Strategy

Any forecasts in this material are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed by Barings or any other person. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Any investment results, portfolio compositions and or examples set forth in this material are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this material No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments. Prospective investors should read the offering documents, if applicable, for the details and specific risk factors of any Fund/Strategy discussed in this material.

Barings is the brand name for the worldwide asset management and associated businesses of Barings LLC and its global affiliates. Barings Securities LLC, Barings (U.K.) Limited, Barings Global Advisers Limited, Barings Australia Pty Ltd, Barings Japan Limited, Baring Asset Management Limited, Baring International Investment Limited, Baring Fund Managers Limited, Baring International Fund Managers (Ireland) Limited, Baring Asset Management (Asia) Limited, Baring SICE (Taiwan) Limited, Baring Asset Management Switzerland Sarl, and Baring Asset Management Korea Limited each are affiliated financial service companies owned by Barings LLC (each, individually, an “Affiliate”).

NO OFFER: The material is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service in any jurisdiction. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This material is not, and must not be treated as, investment advice, an investment recommendation, investment research, or a recommendation about the suitability or appropriateness of any security, commodity, investment, or particular investment strategy, and must not be construed as a projection or prediction.

Unless otherwise mentioned, the views contained in this material are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Individual portfolio management teams may hold different views than the views expressed herein and may make different investment decisions for different clients. Parts of this material may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this material is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any service, security, investment or product outlined in this material may not be suitable for a prospective investor or available in their jurisdiction. Copyright in this material is owned by Barings. Information in this material may be used for your own personal use, but may not be altered, reproduced or distributed without Barings’ consent.