Here’s a summary of our current outlook for commercial real estate (CRE) for the US and globally. For a deep dive into the five key takeaways from our outlooks read Global commercial real estate update: State of play heading into Q4 2024 and US commercial real estate outlook – Looking beyond 2024W.
We head into Q4 2024 expecting values to start to recover after 24 months of correction. Unlike most years, the recent increase in interest rates in many markets will keep the pace of transaction subdued through year-end, in our view. We have growing confidence that transaction activity is likely to re-accelerate in early 2025, and that the start of a new real estate value cycle is close at hand.
The real estate value cycle is expected to benefit less from cap rate compression compared to previous recoveries. Achieving the best real estate returns, relative to the respective local market, will require a focus on property income growth and reliance on secular demand drivers that can mitigate the economic cycle easing. It may also elevate the need to seek differentiated performance through market selection because of the large historical gap between top- and bottom-performing markets.
Get a deep dive into the key takeaways from our global commercial real estate outlook.
Until recently, transaction volumes were expected to end 2024 at a slow jog due to the lingering drag of higher interest rates. But mounting evidence of easing inflation and economic conditions provoked sharp declines in US Treasury yields and elevated expectations of imminent fed fund rate cuts. That’s driving confidence in a real estate recovery with transaction activity re-accelerating either late this year or in early 2025, and that the start of a new real estate value cycle is close at hand.
Need for property income growth
This new real estate value cycle, however, is expected to benefit less from cap rate compression compared to previous recoveries. Near-term economic growth is expected to ease, and current pricing largely reflects different sector expectations for income growth and liquidity. This accentuates the need for property income growth and reliance on secular demand drivers that can mitigate the easing of the economic cycle. It also may elevate the need to seek differentiated performance through market selection because of the large historical gap between top- and bottom-performing markets.
As the November US presidential election approaches, the candidate’s policy differences will undoubtedly provoke speculation about which is best for real estate. While we’re focused on the potential impacts of the US presidential election, we believe that differences in state and local policies impact real estate investment more directly. Plus, the current trajectory of inflation, economic growth, interest rates, and real estate conditions provide more actionable information for investment decisions.
Get a deep dive into the key takeaways from our US cpmmercial real estate outlook.
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