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Real Estate

U.S. Real Estate: Repricing of Risk Keeps Liquidity Low

November 2023 – 10 min read

Tight financial conditions brought about by monetary policy are causing investors to rethink their yield requirements—and this is putting continued pressure on property prices. The Barings Real Estate team discusses how this backdrop is presenting both challenges and opportunities in U.S. real estate.

  • The third quarter saw additional evidence of a U.S. economy that—while slowing—is perplexingly steady amid tighter financial conditions.
  • While third quarter data did not demonstrate resurgent inflation, neither did it show that inflationary pressures were receding.
  • The threat of resurgent inflation brought about by armed conflict and other forms of geopolitical tensions combined with increasing systemic risks from overleveraged borrowers and higher rates mean that values and yield requirements are still adjusting amid dislocated capital markets.
  • The probability of a U.S. recession over the next year has fallen from 65% in June to 55% in September. If one does materialize it is not expected to be deep.
Property Market
  • Real estate debt distress, although primarily involving mortgages on office and retail mall properties, is rising in all sectors.
  • Transaction activity, at $89 billion in the third quarter, was down 53% year-over-year. All major property types saw lower sales activity.
  • Continued e-commerce driven consumption as well as supply chain reshoring and near-shoring drove up industrial rents by 9.6% year-over-year.
  • New supply led to a 10 bps rise in U.S. apartment vacancy rates, to 7.0%, but increased demand nudged up year-over-year rent growth by 0.7%.

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Dags Chen, CFA

Head of U.S. Real Estate Research & Strategy

Lincoln Janes, CFA


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