Highlights from the 45th edition of PwC and ULI’s Real Estate Outlook Survey of industry participants on investments, capital markets, development, property sectors, top markets, and the economic factors impacting the real estate market are discussed by Real Estate Deals Leader, PwC US Tim Bodner and Andrew Alperstein, as a partner in PwC’s Financial Markets & Real Estate Group. Discussions include expectations on property values, interest rates, inflation, performance, and opportunities moving forward.
They noted that sentiment changed as they were performing the surveys, with the 10-year treasury moving from around 3% to the high 4% during this process. Though they note that the sentiment remains generally optimistic, it does now range from glass half full to glass half empty depending on who you speak with. There also was some interesting discussion about the dramatic increase in insurance cost and the effect on underwriting projects.
The Discussion: Navigating Uncertainties; Insights from the 2024 PWC Emerging Trends in Real Estate Report
Introduction:
In the dynamic world of real estate, staying ahead of emerging trends is crucial for industry players. The recently released 2024 report on Emerging Trends in Real Estate, jointly conducted by PwC and the Urban Land Institute, provides valuable insights into the current landscape. Hosted on the “cow.com” show, the conversation with Tim Bodner and Andrew Alperstein, partners at PWC, delves into the key highlights and trends outlined in the 45th annual edition of this respected report.
Overall Trend and Sentiment Shift:
The conversation kicks off with a discussion on the overall sentiment captured by the report. As the hosts emphasize, understanding the market’s trajectory is vital for commercial real estate professionals. The report indicates a dynamic shift in sentiment, influenced by factors such as the 10-year Treasury rates and concerns about office property usage, downtowns, and pricing.
Timing and Recovery Expectations:
With transaction volumes down across the country, the hosts inquire about respondents’ expectations for a market turnaround or recovery. The conversation reveals a cautious optimism, with some anticipating a meaningful uptick in transactions by late 2023 or early 2024. External factors, such as geopolitical events, add an element of uncertainty to the recovery outlook.
Recessionary Concerns:
The hosts explore respondents’ views on the possibility of a recession. While there is a mix of opinions, the prevailing sentiment is that the higher interest rate environment, coupled with potential impacts on corporate earnings and investments, may slow down the economy. However, there is growing concern about the geopolitical environment’s influence on inflation and its potential to impact the overall economy.
Inflation Expectations:
The conversation touches upon the recent pause in rate hikes by the Federal Reserve and explores respondents’ expectations regarding inflation. While inflation has moderated in certain aspects, concerns about the higher rate environment’s impact on borrowing costs, transaction pricing, and overall market dynamics persist.
Commercial Real Estate Acquisitions Outlook:
Discussing the acquisitions landscape, the hosts highlight the need for thorough research and a shift in focus towards specific submarkets, property types, and assets. Opportunities in recapitalization, along with a closer look at going-in basis metrics, are noted as strategies to navigate the evolving market conditions.
Commercial Property Sector Insights:
The report underscores the resilience of retail, especially grocery-anchored and experiential retail, bouncing back well. The hosts emphasize the growing significance of alternative property types such as data centers, manufactured housing, and single-family rentals in investor portfolios.
Top Commercial Real Estate Markets and Opportunities:
The hosts reveal the top three markets – Nashville, Phoenix, and Dallas – based on survey respondents’ preferences. Atlanta also makes it to the top five, driven by positive momentum in multifamily and industrial sectors. Opportunities arise in recapitalization, contrarian plays in office assets, and investments in alternative property types driven by changing regulatory environments.
Final Thoughts and Commercial Real Estate Industry Shifts:
In conclusion, the hosts express optimism about industry players being on the front foot, actively seeking opportunities despite uncertainties. They highlight shifts towards private credit, investments in affordable housing, artificial intelligence-driven sectors, and opportunities arising from changing regulatory landscapes.
Conclusion:
The conversation provides a comprehensive overview of the 2024 Emerging Trends in Real Estate report, offering valuable insights for real estate professionals navigating a complex and evolving market. As industry players grapple with uncertainties, the report serves as a strategic guide to capitalize on opportunities and drive success in the coming years.