Global Real Estate Outlook 2024 – JLL

Debt in the spotlight

In a market where credit remains available and active, the stability and predictability of interest rates will be more important to the improvement in investment market activity than the level of borrowing costs alone. Real estate credit strategies will remain in focus amid the elevated interest rate environment, and new sources of debt are arising to complement funding options in markets and sectors where lenders are more cautious. Given the declines in real estate values to date, there will be many situations where new equity is required to meet debt service covenants. Loan maturities, however, will catalyze transactions activity and, in some cases, distress. Increased loan originations in 2024 will provide clearer data points on property values for lenders, investors and valuers.

Sentiment that interest rates have peaked will help improve transaction volumes and stabilize pricing, but it will take time and prolonged stability in index rates to further unlock dry powder. At the start of 2024, the U.S. is furthest along in its price adjustment cycle, followed by Europe and then Asia Pacific. But the real estate market cannot be played precisely from a timing perspective. Waiting for the perfect moment to act on medium and long-term strategies risks missing out on emerging opportunities and falling behind competitors.

Sector snapshots

Opportunities for growth exist in pockets of sectors and geographical micro-markets, and there will be opportunities in distress and portfolio rebalancing efforts. For investors, the focus on diversification will take different forms in markets around the world, and even those sectors which are currently “out of favor” still have interesting segments, and a place in global, diversified portfolios.

The Living sectors will remain a bright spot in 2024 and beyond for many reasons. An expanding world population is becoming more urban, meaning cities require more homes, as well as a broader range of household types and sizes. Long-term structural trends like ageing populations, demand for education, and housing availability remain critical drivers of housing demand and will continue to benefit Living investment strategies across more markets globally. In the near-term in 2024, some markets will see distress and micro over-supply situations as interest rates and concentrated new construction in growth markets have an impact.

The growing emphasis on regionalization and local manufacturing will continue in 2024, as efforts to bring production closer to the customer and diversify supply chains broaden. The evolving global landscape of government incentives will bring new manufacturing into the advanced economies of North America and Europe, driving demand for industrial and logistics facilities. Urbanization and the evolution of consumer preferences that prioritize ever-faster delivery times will mean an intensifying focus on urban logistics. These trends will benefit not only the largest metros but the growing U.S. Sunbelt region as well.

Retail is poised for an evolving comeback in 2024. Investors are returning to a sector that earlier in the cycle transformed its supply-and-demand dynamics and its yield and rental profile to offer attractive returns and opportunities for renewed rental growth. In the U.S., high-quality, well-located retail – especially grocery-anchored – has been one of the top performing segments, with increasing investor allocations as consumers remain resilient from COVID-era stimulus amid strong job and wage growth. In Europe, the continued rebound in travel and tourism, and the return of positive real wage growth as inflation falls, will support turnover at a time of otherwise soft economic conditions. In China, the inclusion of some forms of retail into the CREIT scheme should bolster demand for retail assets; and the strong reception to India’s first retail REIT in 2023 could set the scene for rising investment into high-quality malls over the next year.