The global real estate industry is at a ‘pivot point’, with prospects seen improving for an upswing in investment activity later this year and into 2025, according to the latest Emerging Trends in Real Estate Global Outlook 2024 report from PwC and the Urban Land Institute (ULI).
The report polled thousands of real estate leaders across Europe, the US and Asia Pacific, and is regarded as a key indicator of sentiment towards the global real estate investment and development outlook across the globe.
With signs of inflation easing and interest rates potentially peaking, coupled with greater clarity on monetary policy, there is a degree of optimism that the market is gradually coming to terms with an elevated ‘higher for longer’ interest rate environment, according to the report.
Any upturn is likely to be more pronounced in 2025 than this year, and investment activity will also be subject to uncertainty from geopolitical factors with elections planned in more than 60 countries. In addition, it is not yet clear how much ‘distress’ still has to emerge from the industry as it recovers from the downturn which has sent transaction activity to its lowest levels since 2012.
The report notes that while the industry has been in ‘wait-and-see’ mode for the last two years there is what is described as a ‘great reset’ that goes well beyond the industry adapting to the new era of higher-for-longer interest rates, with many of the more progressive players taking the opportunity for a radical re-think of what will make real estate fit for purpose in the long term.
Many are showing a clear preference for more alternative property sectors, and numerous respondents indicated that the driver of investor activity is increasingly about ‘the three Ds’: demographics, digitalisation, and decarbonisation.
This is bolstering the investment case for housing, logistics and alternative sectors, notably data centres, and in turn complements the industry’s environmental, social and governance (ESG) agenda, though market conditions may slow progress on ESG compliance.
Lisette van Doorn, CEO, ULI Europe, commented: ‘This year’s report indicates that the market is beginning to get to grips with a new era of higher interest rates, and how this will need to impact pricing levels. Depending on the level of distress that might emerge, this may actually help the implementation of the ESG and, especially, the decarbonisation agenda, with potential buyers in a stronger negotiation position to incorporate the required capital expenditure.’
With the traditional established sectors of retail and offices being overtaken by logistics and residential in terms of capital deployment, there are growing levels of investment seen around the world in niche subsectors, the report found. These include, for example, last mile logistics, purpose-built student accommodation and senior living.
Gareth Lewis, PwC Real Estate, commented: ‘Through our conversations with market participants, we identified a strong belief that a long-term, thematic approach, particularly centred around decarbonisation, opens up a new world of potential quasi-real estate products for investors.
‘This includes the expectation of increased investment in sectors such as new energy infrastructure, which continues to be viewed as holding the greatest overall investment and development potential, according to survey participants in Europe.’
Van Doorn concluded: ‘Overall, with greater clarity on monetary policy there is some optimism in the outlook for real estate in the next few years, with opportunities emerging especially at the intersection of real estate and infrastructure, for example where related to the energy transition, communication, and data.
‘However, while we cannot ignore that this optimism is still tempered by ongoing uncertainty arising from geopolitical – and political – factors in many countries, it is clear that there are significant structural opportunities catalysing the long- term growth of the industry.’
