2024 Real Estate Outlook
principal real estate
Download the full report
Threading the eye of the needle
Overview
Macro and real estate markets
The global economy is finely balanced with the push of higher interest rates colliding against the pull of strong labor markets.
We continue to place a high probability of a modest recession within developed markets but are open to the prospect of a "soft landing."
Real estate values are likely to remain under pressure due to elevated credit costs. However, structurally-driven property types are expected to remain better protected.
We expect an array of opportunities to present themselves from 2024 onwards once repricing is largely complete.
Our high conviction ideas
Real estate debt remains our highest conviction idea given its strong relative value and the premium it offers to core equity.
We remain on watch for emerging opportunities in listed REITs if the economy were to head towards a "soft landing" scenario.
We expect private real estate opportunities to emerge in 2H 2024 once repricing is largely complete and debt markets are more accommodating.
Our conviction on structurally-driven property types (data centers, logistics, and residential) remains steadfast and we continue to advocate selective adds across all quadrants.
world macroeconomic environment
Economic conditions vary across regions
Higher interest rates, inflation, and low housing affordability may hinder global growth.
United States
Economic growth has stalled and is expected to remain flat in the first half of the year as the full impact of tighter financial conditions continues to pass through.
Inflation has come down sharply below three percent but the last mile toward the target may be bumpy as the energy price cap is phased out and subsidies are reduced.
Policymakers remain cautious regarding easing base rates, but their attention should shift from inflation risk to economic and financial risks.
Forward-looking economic indicators are in contraction territory, including business activity, consumer confidence, and lending demand.
Economic growth remains muted as China, Japan, and Australia are expanding below potential.
Easing inflation has effectively ended the interest rate hiking cycle with the potential exception of Japan.
Exports are arguably the strength of most APAC economies but have declined over the past year. This remains the most prominent headwind to growth.
A growth recession is in the offing for 2024.
Economic growth remains healthy heading into 2024, but headwinds abound.
Inflation is not yet within the Federal Open Market Committee’s (FOMC) prescribed target.
Policy pause as inflation cools, but a higher rate environment presents challenges.
Consumers are struggling to maintain spending as balance sheets adjust to post-stimulus norms.
Housing has stalled due to record-low affordability, which presents significant challenges to headline economic growth.
Europe
Japan
Download the full report
“Successful investing is about managing risk
not avoiding it.”
Benjamin Graham
opportunities
Stick with structural themes but we also see niche opportunities
Download the full report
Essential Retail
Consumers in the U.S. are showing signs of stress. Core sales categories have wavered as household balance sheets revert to pre-pandemic norms.
Retail spending has been strongest within the non-discretionary categories and consumers are increasingly substituting lower-cost goods.
While retail is generally a more cyclical sector, we continue to favor shopping centers with essential and value-oriented retail tenants.
Student Housing
The structural demand for higher education, in conjunction with the reduction in private market rental availability and affordability makes student housing a compelling investment across Europe.
The sector is significantly undersupplied, particularly in the U.K., where the shortage of beds is likely to worsen further over the next decade.
We are in favor of strategies aiming to the development of new modern student accommodation assets in supply-constrained submarkets, ensuring investors higher yield on cost.
U.S. opportunity
Single-Family Rental
Shelter costs in the U.S. remain elevated and the lack of movement in the transaction market has not helped.
Low affordability and high mortgage rates have conspired to halt sales in the single-family market as homeowners are unwilling to trade out of their historically low mortgage rates.
Low affordability and high rates, have augured well for single-family rental demand, making it one of our highest conviction strategies for 2024.
EUROPE opportunity (NICHE)
Hotels
Medium- and long-term demand for hotels remains strong, underpinning future growth. However, stresses amongst certain operators across Europe, caused by the pandemic and interest rate hikes, have created an immediate opportunity.
Target single asset or portfolio requiring specialist experience to unlock and create value through strategic repositioning, discounted value, and improvement in top and bottom line through technology and innovations.
global opportunity
Data centers
Demand for data centers will continue to rise in the short term, leading to strong performance within this sector.
Data centers have the highest costs of development of any major property sector. Higher capital costs and the lack of a more liquid debt market make it difficult for developers to keep up with increases in demand.
Consequently, we feel that both occupancy and values will continue to increase.
Click arrows to carousel through themes.
1 / 5
2 / 5
3 / 5
4 / 5
5 / 5
real estate
Our expectations for the four quadrants
Click on each quadrant to learn more.
Download the full report
01
Private Equity
Core, Value-add, and Opportunistic Strategies
02
Public Equity
REIT and Infrastructure Securities
03
Private Debt
Commercial Mortgages and High Yield Debt
04
Public Debt
Commercial Mortgage-Backed Securities (CMBS)
04
Public Debt
Commercial Mortgages-Backed Securities (CMBS)
Asset price discovery substantially complete ex-recession.
Conduit and SASB pathway is open for conservative deals.
“AA” quality bias given recession risk. Spreads and YTM are attractive.
Liquidity and excess spreads for structured product have the potential to be accretive.
Less focus on buy and hold and more emphasis on trading quality, spread and duration.
Close
Back to:
Private Equity
View Previous:
Private Debt
01
Private Equity
Core, Value-add, and Opportunistic Strategies
We expect property fundamentals to be stable but vulnerable to potentially weaker economic conditions.
Property values have not fully adjusted to the cost of debt capital, and we expect additional losses in the next 6-9 months.
We see select buying opportunities on the right basis in 2024 particularly in structurally-driven property types.
Close
View Next:
Public Equity
EUROPE opportunity (niche)
global opportunity
See what sectors we are currently neutral about and those which we believe warrant caution.
summary: A year of transition is ahead
Threading the eye of the needle in 2024
01
We expect 2024 to be a transition year and one of two halves
We believe debt opportunities will remain more attractive in the first half of 2024 offering strong absolute and risk-adjusted returns. The second half is where we expect listed and private equity to re-emerge from a two-year winter and start to present select opportunities.
02
Our long-term conviction for structurally-resilient property sectors is unchanged
Data centers, Logistics, and Residential sectors are structurally underserved, and we are advocates of adding to portfolios as needed given the resiliency of underlying demand.
03
Threading the eye of the needle in 2024
Quality and sector selection are key to an effective investment strategy in the next 12 months, as values stabilize and the path of the recovery begins to crystalize.
We believe real estate debt offers compelling absolute and relative value making it our pick for preserving capital values while generating income over the short-term. With rates peaking and values expected to trough in the next six months, we will increasingly focus on the public and private equity real estate quadrants as means of gaining exposure.
02
Public Equity
REIT and Infrastructure Securities
Asset price discovery substantially complete ex-recession.
Equity risk premia remains tight.
Long durations are vulnerable in a rising yield environment partly offset by exposure to resilient sectors.
Weakness expected through mid-2024 as a recession is priced in. A durable bottom is likely to be formed at that time.
Potential to add risk in 2H 2024.
Close
View Next:
Private Debt
View Previous:
Private Equity
03
Private Debt
Commercial Mortgages and High Yield Debt
Asset price discovery underway.
Another 10%+ downside risk to collateral values.
Credit is constrained with banks on the sidelines.
Yields are relatively attractive. Spreads are likely to widen a little given recession call.
Opportunity to dollar-cost-average through the recession.
Duration target is neutral to short unless ALM matched.
Close
View Next:
Public Debt
View Previous:
Public Equity
For more information about why we believe this sector offers opportunity, download the full report.
For more information about why we believe these sectors offer opportunity,
For more information about why we believe this sector offers opportunity, download the full report.
For more information about why we believe this sector offers opportunity, download the full report.
For more information about why we believe this sector offers opportunity, download the full report.
Download the full report
Download the full report
Download the full report
Download the full report
3 / 5
u.s. opportunity
Single-family rentals
Shelter costs in the U.S. remain elevated and the lack of movement in the transaction market has not helped.
Low affordability and high mortgage rates have conspired to halt sales in the single-family market as homeowners are unwilling to trade out of their historically low mortgage rates.
Low affordability and high rates, have augured well for single-family rental demand, making it one of our highest conviction strategies for 2024.
4 / 5
EUROPE opportunity (NICHE)
Student housing
The structural demand for higher education, in conjunction with the reduction in private market rental availability and affordability makes student housing a compelling investment across Europe.
The sector is significantly undersupplied, particularly in the U.K., where the shortage of beds is likely to worsen further over the next decade.
We are in favor of strategies that develop new modern assets focused on student accommodations in supply-constrained submarkets, ensuring investors a higher yield on cost.
5 / 5
global opportunity
Essential retail
Consumers in the U.S. are showing signs of stress. Core sales categories have wavered as household balance sheets revert to pre-pandemic norms.
Retail spending has been strongest within the non-discretionary categories and consumers are increasingly substituting lower-cost goods.
While retail is generally a more cyclical sector, we continue to favor shopping centers with essential and value-oriented retail tenants.
Asset price discovery substantially complete ex-recession.
Equity risk premia remains tight.
Long durations are vulnerable in a rising yield environment partly offset by exposure to resilient sectors.
Weakness expected through mid-2024 as a recession is priced in.
A durable bottom is likely to be formed at that time.
Potential to add risk in 2H 2024.
Asset price discovery underway.
Another 10%+ downside risk to collateral values.
Credit is constrained with banks on the sidelines.
Yields are relatively attractive. Spreads are likely to widen a little given recession call.
Opportunity to dollar-cost-average through a potential recession.
Duration target is neutral to short unless ALM matched.
download the full report.
The global economy is finely balanced with the push of higher interest rates colliding against the pull of strong labor markets.
We continue to place a high probability of a modest recession within developed markets but are open to the prospect of a "soft landing."
Real estate values are likely to remain under pressure due to elevated credit costs.. However, structurally-driven property types are expected to remain better protected.
We expect an array of opportunities to present themselves from 2024 onwards once repricing is largely complete.
Real estate debt remains our highest conviction idea given its strong relative value and the premium it offers to core equity.
We remain on watch for emerging opportunities in listed REITs if the economy were to head towards a "soft landing" scenario.
We expect private real estate opportunities to emerge in 2H 2024 once repricing is largely complete and debt markets are more accommodating.
Our conviction on structurally-driven property types (data centers, logistics, and residential) remains steadfast and we continue to advocate selective adds across all quadrants.
Economic growth remains healthy heading into 2024, but headwinds abound.
Inflation is not yet within the Federal Open Market Committee’s (FOMC) prescribed target.
Policy pause as inflation cools, but a higher rate environment presents challenges.
Consumers are struggling to maintain spending as balance sheets adjust to post-stimulus norms.
Housing has stalled due to record-low affordability, which presents significant challenges to headline economic growth.
Economic growth has stalled and is expected to remain flat in the first half of the year as the full impact of tighter financial conditions continues to pass through.
Inflation has come down sharply below three percent but the last mile toward the target may be bumpy as the energy price cap is phased out and subsidies are reduced.
Policymakers remain cautious regarding easing base rates, but their attention should shift from inflation risk to economic and financial risks.
Forward-looking economic indicators are in contraction territory, including business activity, consumer confidence, and lending demand.
Economic growth remains muted as China, Japan, and Australia are expanding below potential.
Easing inflation has effectively ended the interest rate hiking cycle with the potential exception of Japan.
Exports are arguably the strength of most APAC economies but have declined over the past year. This remains the most prominent headwind to growth.
A growth recession is in the offing for 2024.
We expect property fundamentals to be stable but vulnerable to potentially weaker economic conditions.
Property values have not fully adjusted to the cost of debt capital, and we expect additional losses in the next 6-9 months.
We see select buying opportunities on the right basis in 2024 particularly in structurally-driven property types.
Asset price discovery substantially complete ex-recession.
Equity risk premia remains tight.
Long durations are vulnerable in a rising yield environment partly offset by exposure to resilient sectors.
Weakness expected through mid-2024 as a recession is priced in. A durable bottom is likely to be formed at that time.
Potential to add risk in 2H 2024.
Asset price discovery underway.
Another 10%+ downside risk to collateral values.
Credit is constrained with banks on the sidelines.
Yields are relatively attractive. Spreads are likely to widen a little given recession call.
Opportunity to dollar-cost-average through a potential recession.
Duration target is neutral to short unless ALM matched.
Asset price discovery substantially complete ex-recession.
Conduit and SASB pathway is open for conservative deals.
“AA” quality bias given recession risk. Spreads and YTM are attractive.
Liquidity and excess spreads for structured product have the potential to be accretive.
Less focus on buy and hold and more emphasis on trading quality, spread and duration.
The structural demand for higher education, in conjunction with the reduction in private market rental availability and affordability makes student housing a compelling investment across Europe.
The sector is significantly undersupplied, particularly in the U.K., where the shortage of beds is likely to worsen further over the next decade.
We are in favor of strategies that develop new modern assets focused on student accommodations in supply-constrained submarkets, ensuring investors a higher yield on cost.
Scroll back to top
See what sectors we are currently neutral about and those which we believe warrant caution.
Download the full report
Asset price discovery substantially complete ex-recession.
Conduit and SASB pathway is open for conservative deals.
“AA” quality bias given recession risk. Spreads and YTM are attractive.
Liquidity and excess spreads for structured product have the potential to be accretive.
Less focus on buy and hold and more emphasis on trading quality, spread and duration.
Asset price discovery substantially complete ex-recession.
Conduit and SASB pathway is open for conservative deals.
"AA" quality bias given recession risk. Spreads and YTM are attractive.
Liquidity and excess spreads for structured product have the potential to be accretive.
Less focus on buy and hold and more emphasis on trading quality, spread and duration.