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Real Estate

U.S. Real Estate: Patience, Vigilance Needed

February 2023 – 6 min read

If a soft landing continues to play out in 2023, then transactional liquidity could return sooner than expected—possibly circumventing a substantial property price correction. The Barings Real Estate team discusses.

Economy
  • U.S. property fundamentals are softening as rising interest rates weigh on the broader economy and financial markets.
  • Inflation has trended positively over the past two quarters, leading to increased optimism that the Federal Reserve will be able to bring inflation under control.
  • Consensus expectations are currently for a mild recession—if one at all—to transpire in the later part of this year or early 2024.
Property Market
  • Transaction activity totaling $138 billion over the fourth quarter of 2022 was 62% lower than the same quarter the year prior, reflecting the decline in sales volume but also the magnitude (and exuberance) of 2021’s fourth quarter activity.
  • All major property types transaction activity was down by more than 50% year-over-year. Leading the decline relative to a year ago was apartment (-69%), followed by office (-65%), then by industrial (-58%) and retail (-57%).
  • Lower transactional liquidity and higher interest rates have impacted property prices. Composite public REIT share prices have fallen by 27% since the beginning of 2022.

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