The size of the professionally managed global real estate investment market grew to $11.4 trillion in 2021, according to MSCI research.
Experts say
Real estate has a history of performing well during inflationary times and can be a good hedge, experts say, because of favorable supply and demand conditions and the ability for landlords to pass on the cost of inflation to tenants by raising rents.
Experts say
Real estate values tend to be stable or increase over long periods. The Dow Jones U.S. Index The Real Estate Index, an index designed to track the performance of real estate investment trusts (REITs) and other companies that invest directly or indirectly in real estate through development, management or ownership, including real estate agencies, has increased by 7.34% annually over the past decade.
Real estate also helps investors navigate rising interest rates and forecasts of slower economic growth globally. However, during this period, asset revaluations will be faster than in the past due to more diversified risk appetites and more investment participants.
Higher interest rates impact equity valuations due to a decline in future free cash flow output. A similar effect occurs on asset values due to buyers’ inability to finance large transactions. However, the decline in real estate values due to higher finance costs also increases capitalization rates due to higher returns. As a result, real estate remains attractive to investors.
Experts predict more M&A deals in the real estate industry due to the strength of the US dollar and the long-term prospects of real estate. However, investors need to carefully study the changes in demographics and behavior of buyers and tenants in each market.
One expert said: “We are seeing strong economic growth in cities around the world. The average age of marriage is 10 years later than before and fertility rates have fallen in advanced economies. As a result, retirement ages and demographics continue to change, leading to changes in strategies and types of real estate investments.”
One of the main demographic changes the world is witnessing is the change in the way workers work, with hybrid models of working from the office and from home becoming more common. The work-from-home movement has led to rising office vacancy rates around the world, especially in the United States. San Francisco has a vacancy rate of 25% and New York is 16%.
However, despite the change in working practices, commercial real estate and the vibrancy of cities will not disappear. At the same time, the shift to hybrid working models is not a negative for commercial, amenity-rich Class A properties. Buildings with open terraces and green spaces that offer concierge services and on-site maintenance are still attracting higher occupancy rates.
Currently, the office market is segmented into Class B and C buildings that are outdated and will be obsolete, and Class A buildings that are rich in amenities. Class B and C premises have the potential to provide opportunities for real estate investors, if the price is reasonable and the project is attractive.
At the same time, the trend of construction, renovation and conversion of functions will take place, not only for offices but also for retail and residential real estate.