Global Real Estate: Predictions for 2024
As we enter 2024, the global real estate market is poised for a new chapter after the challenges and turbulence of the previous year. Despite macro-economic and geo-political uncertainties, there are reasons for optimism as we analyze the trends and outlook for the coming year on a global scale.
Let’s take a closer look at key regions and their respective real estate markets:
UK:
While the UK continues to grapple with macro-economic and geo-political challenges that carried over from 2023, there are signs of hope. Inflation is showing early signs of slowing down, and expectations of a reduced base rate provide some relief. However, the debt market is still expected to be tight, resulting in lower deal volumes. Nonetheless, there may be opportunities arising from forced sales and distress as pre-COVID borrowing facilities mature. Investors with strong capitalization can take advantage of attractively priced assets, and non-traditional finance options may find their place in the market.
In terms of asset classes, the quality-based polarization of office and retail stocks will persist. Data centers, logistics, and life sciences assets are expected to remain hot commodities. A significant development in the residential sales market is the sharp decline in mortgage interest rates in early 2024, which could stimulate activity. The demand for rental apartments in the residential build-to-rent sector will continue to outstrip supply, leading to increased rental growth. With a general election expected in the UK, political changes may also impact the real estate market in unforeseen ways.
Germany:
The real estate market in Germany faced numerous challenges in 2023, including a steep decline in turnover and the number of building applications for new residential and commercial buildings. Rising interest rates, the energy crisis, valuation uncertainties, and higher construction costs contributed to insolvencies among property developers and tenants.
However, as interest rates stabilize in 2024, the investment market is expected to find stability and grow. There are expectations that investment property prices will return to market levels as some owners face pressure to sell. In addition, there is a growing focus on sustainability requirements, with existing properties needing adaptation to meet regulations. The real estate and construction industry will need to prepare for this transition. Institutional investors may also sell parts of their property portfolios to meet their ESG (Environmental, Social, and Governance) targets.
Italy:
Italy’s real estate market also felt the impact of macro-economic and geo-political challenges in 2023, particularly in the financing realm. However, there is a notable exception in the hospitality sector, which continues to flourish. Both traditional accommodations, such as hotels, and short-term rental accommodations, like serviced apartments, are experiencing growth, particularly in the historic centers of major cities like Florence, Rome, Venice, and Milan.
To regulate short stays, the Italian government implemented regulations at the end of 2023, following the examples set by other cities globally. Some major cities have also imposed planning limits on new hotel and tourist accommodation constructions, significantly affecting the hotel market in Florence. Looking ahead, international institutional investors continue to show interest in the Italian hospitality sector. However, potential investors need to closely monitor the increasing regulation, especially in major tourist cities.
U.S.:
The United States real estate market faces its own set of challenges heading into 2024. High interest rates, supply-chain disruptions, and labor shortages contribute to rising development costs. Construction firms are prioritizing reducing costs amid aggressive interest rate hikes, while developers are seeking alternative lending sources to offset issues related to tightening loan standards.
As remote working remains prevalent, Class A office spaces that offer additional value, including health and wellness features and social spaces, are expected to achieve higher occupancy rates. In the retail sector, incorporating both e-commerce and physical locations will be crucial for success. While retail demand has remained steady despite some big-box retail setbacks, the hybrid approach blending online and in-store retail experiences will be advantageous in 2024.
In terms of different sectors, the life sciences and industrial sectors are experiencing a slowdown after significant growth in recent years. Consumer spending pressures and land use challenges for warehouse sites contribute to the deceleration in the industrial sector. The life sciences sector, although expected to continue growing in the long term, will experience some decline in momentum. However, the demand for data centers is anticipated to double by 2030, driven by the increasing need to support artificial intelligence advancements.
Despite supply chain shortages, difficulties in obtaining permits, and tightening financing terms, the freeze on the housing supply is unlikely to thaw in 2024, presenting a mixed stability outlook for the multifamily sector.
In conclusion, the global real estate market in 2024 shows signs of optimism and potential growth despite the challenges of the previous year. While each region faces its unique obstacles and opportunities, investors need to carefully navigate the evolving landscape. It is crucial to monitor trends, regulations, and sustainability requirements to make informed decisions and capitalize on the emerging opportunities.
