2024 Outlook: Global Real Estate
Against a hazy backdrop, our real estate debt and equity experts bring today’s biggest challenges into focus—while also weighing in on where opportunities are emerging across the U.S., Europe, and Australia.
Maureen Joyce (Moderator): How has the increase in rates impacted real estate, and how are you thinking about a potentially ‘higher-for-longer’ rate environment?
John Ockerbloom: Against the backdrop of a significant rise in rates, transaction volumes across U.S. real estate markets have meaningfully declined this year. The shock to the system of a doubling of the risk-free rate has created a gap in prices between buyers and sellers, resulting in a transaction pipeline that’s around 60% below the average level of recent years.1 In addition, we are seeing underlying valuations continue to adjust in the private and public real estate markets in the U.S.
Going forward, rates could remain higher for longer—but this isn’t necessarily all bad for real estate. For example, while prices remain elevated today, there has been some cooling in the cost of materials and, to some extent, labor—which has been beneficial for development and redevelopment activity in real estate. Also, the shift in rates means that U.S. Treasuries are now hovering around 4%, which we believe is indicative of stability and much more consistent with the long-term average.
Nick Pink: While the significant rise in rates has indeed been a shock to the market, inflation has dropped back toward target in many European countries. In the year ahead, the prospects of rates returning to 2021 levels is remote, however, rate anxiety has eased in recent months. Against this backdrop, European property transaction volumes, having slumped in 2023, should begin to revive in 2024.
1. Source: Barings Real Estate Research. As of September 30, 2023.