A US and global real estate recovery with transaction activity re-accelerating late this year or in early 2025 and the start of a new value cycle are close in our view. 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:
US commercial real estate outlook – Looking beyond 2024
Global commercial real estate update: State of play heading into Q4 2024
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.
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 elevates 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.
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 also elevates 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 outlooks in US commercial real estate outlook – Looking beyond 2024 and Global commercial real estate update: State of play heading into Q4 2024.
The public REIT market can serve as a leading indicator for the private property market, so we believe private US real estate is poised for recovery.
Each month, the Invesco SteelPath team provides an update and insight on the most recent midstream industry happenings. Each monthly commentary provides: market performance update, recent news, and chart of the month.
Higher interest rates, reduced basis, and tighter bank regulations are potential positives for commercial real estate (CRE) credit and why we see opportunity.
Important information
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The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions, there can be no assurance that actual results will not differ materially from expectations.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Property and land can be difficult to sell, so investors may not be able to sell such investments when they want to. The value of property is generally a matter of an independent valuer's opinion and may not be realized.
Investing in commercial real estate assets involves certain risks, including but not limited to: tenants' inability to pay rent; increases in interest rates and lack of availability of financing; tenant turnover and vacancies; and changes in supply of or demand for similar property types in a given market.
Investing in real estate typically involves a moderate to high degree of risk. The possibility of partial or total loss of capital will exist.
Definitions
The federal funds rate is the rate at which banks lend balances to each other overnight.
Cap rate (capitalization rate): is a term in commercial real estate that refers to the way a building is evaluated.
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