Real estate leaders are feeling slightly more positive about a recovery of investment activity in the next two years despite significant uncertainty around geopolitics and elections, according to a report published on March 12 by non-profit Urban Land Institute (ULI) and consultancy PwC.
The annual global real estate trends report found “early signals” that investors and developers are more optimistic about investment prospects due to more stable inflation and monetary policy. Real estate investors have, however, become increasingly wary of how geopolitical tensions and the wars in Ukraine and Gaza will affect their long-term investment decisions.
“2024 looks to be a calmer year and maybe we will start to see some stability coming back,” said Lissette van Doorn, CEO of ULI Europe, in an interview with fDi at Mipim 2024, held from March 11-14 in Cannes. She adds that some of ULI’s investor members have begun to review deals again, which did not have any interest last year.
The report finds that investment recovery is expected to pick up in 2025, by which time major central banks like the Federal Reserve are expected to have already cut interest rates. The report combines interviews in 2024 with global investors and developers and a November 2023 survey of more than 2500 property professionals across Asia-Pacific, North America and Europe.
Markets with the greatest prospects for investment in 2024 are major metro areas, according to the report, including London and Paris in Europe, the US cities of Nashville and Phoenix, and Tokyo and Sydney in Asia-Pacific. “When there’s a lot of uncertainty, investors choose liquidity,” says Ms van Doorn, referring to markets where investors can easily buy and sell real estate assets.
The slightly rosier investment outlook is in stark contrast to the past two years where real estate markets were frozen and many investors were in “wait and see” mode. Buyers and sellers of real estate assets had been in a stalemate, being unable to agree on prices for transactions as valuations plummeted, particularly for commercial property such as offices.
Global real estate transaction volume in 2023 slumped year-on-year by 48% to $615bn, the sharpest decline since the global financial crisis in 2008 and 2009, according to MSCI Real Assets.
The sharpest declines in global capital flows last year were seen in apartments (58%), followed by offices (55%), industrial (42%) and hotels (33%). While global real estate flows last year were at their lowest level since 2012, the Asia-Pacific region showed more resilience compared with Europe and North America. Singapore and South Korea both ended 2023 relatively strong in terms of investment, according to MSCI data.
Gareth Lewis, PwC’s director for the emerging real estate trends survey, tells fDi that theses investment trends are occurring at a time when real estate sector is undergoing a massive transformation, where traditional asset classes have begun to merge with one another.
“There has been an overlapping of real estate and infrastructure,” he says, referring to a shift towards more mixed-use real estate and more operationally complex alternative sectors such as data centres and life sciences buildings. “Offices that are fit for the future are probably going to be much more operational,” he adds, noting that they may now include nurseries, gyms and other amenities to fit the needs of tenants.
The report expects real estate investment to be driven by demand from demographics, digitalisation and decarbonisation. This is strengthening the investment case for sectors such as housing, logistics and alternative sectors such as data centres, according to the report.
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