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Real Estate

U.S. Real Estate: Positioned for Recovery

February 2024 – 10 min read

When considering the substantial correction in real estate prices and profound pull back in liquidity to this point, an inflection point in U.S. real estate appears closer than before. The Barings Real Estate team discusses how this backdrop is shaping opportunities across the asset class.

Economy
  • The fourth quarter of 2023 marked the sixth consecutive quarter of declining core real estate values, which are down 20.3% from the peak according to the NFI-ODCE.
  • While there is still plenty of uncertainty around the near-term path of inflation with repercussions for monetary policy, the stage is set for real estate transaction activity to re-engage positively at some point in 2024.
  • The probability of a U.S. recession has declined from 65% in June 2023 to 50% as of December 2023. Macroeconomic fundamentals have continued to be supportive of nominal rent trends across every property sector except for office.
Property Market
  • Real estate debt distress is rising. Unsurprisingly, office comprises the largest share of distressed debt but there are signs of strains in segments of the multifamily market.
  • Transaction activity totaled $90 billion in the fourth quarter of 2023, a 41% decline year-over-year. This marks the sixth consecutive quarter of falling transaction activity. For comparison, transaction activity fell for a total of seven quarters between 2007 and 2009.
  • Since the end of 2021, composite public REIT share prices have fallen by 44% with significant variation by property type.
  • The gap between public and private price trends suggests appraisal values have more to fall although the handful of transactions that are taking place are clearing at well below sellers’ book values.

Want to read the full article?

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Dags Chen, CFA

Head of U.S. Real Estate Research & Strategy

Lincoln Janes, CFA

Director, Real Estate Research & Strategy

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document 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. Parts of this document 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 document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document 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. Any investment results, portfolio compositions and/or examples set forth in this document 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 document. 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.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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