The past few years have been tough for analysts trying to make predictions about the economy, finances and global real estate market conditions. With this in mind, the consulting company JLL has published its predictions for the property market in 2024.
A mixed macroeconomic picture
The economic environment remains resilient in early 2024, but the new year is expected to be bumpy for many property markets and government leaders. Risks remain high, and signals of predictability will come only as the year progresses, the consultancy believes.
Markets continue to grapple with the risk of accelerating inflation and, in some cases, recession. But progress by central banks in reining in inflation became evident in late 2023. This created broad market sentiment that interest rates had probably peaked. Markets expect central banks to make a U-turn and hope for a soft landing.
But given the resilience of many economies around the world, interest rates are expected to remain high for much of 2024. The lagged effects of monetary tightening, geopolitical instability and uncertainty about the outcome of elections in major economies create additional potential risks to the outlook. The main forecast is for moderate economic growth in 2024 compared to last year, with prospects for an improved recovery later in the year.
JLL expects growth to be strongest in the Asia-Pacific region, particularly India. European economies, especially Germany, are most at risk of weak growth or even recession at the start of the year. At the same time, the US and Australia are likely to register a decent, if below trend, rate of economic growth.
In real estate markets, however, JLL expects broad sector and geographic divergence in the next growth cycle as the unsynchronized corrections of the last cycle end and market participants struggle to respond to current challenges.
Normalizing and returning predictability
Inflation is slowing in most of the world's major economies, meaning greater predictability in consumer prices and producer prices is returning. The same goes for construction costs, although they will remain high. Interest rates in most advanced economies peaked after aggressive monetary tightening in 2022 and 2023, and they are likely to remain stable until the start of the tapering cycle in mid-to-late 2024, JLL predicted.
The next movements in interest rates are likely to be downwards, which means that loan servicing costs will decrease. Market rates are still volatile, but the direction for them is now down, which will provide some predictability to debt service costs going forward.
Pandemic-related changes in consumer shopping habits, international trade and e-commerce are largely entrenched and will drive demand for logistics space to historical growth trends where construction is slowing in more mature markets. Global office utilization is improving and has largely stabilized in Asia and parts of Europe. In the US, the mandatory return to office is becoming more ubiquitous, and JLL expects office use to continue to grow in 2024, revitalizing central business districts with a resurgence of daytime footfall and retail.
Strategic investing
Perhaps the biggest challenge facing real estate investors in 2024 will be balancing the challenges of financing and managing assets in their existing portfolios with the desire to invest capital in sought-after assets and take advantage of good opportunities over the next 12 to 24 months .
A defining characteristic of successful investors will be duality – the ability to implement offensive and defensive strategies at the same time, efficiently invest resources and make convincing decisions in a still uncertain environment. Many investors have to deal with zero to negative returns, which creates additional challenges in retaining talent.
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 improving investment market activity than the level of lending rates alone. Real estate lending strategies will remain in focus amid high interest rates and new sources of debt emerging in addition to funding options in markets and sectors that lenders are more wary of.
Given the decline in property prices to date, there will be many instances where new capital will be needed to service the debt. But maturing loans will catalyze the deals, and in some cases they will be in distressed assets, JLL notes. The increase in lending in 2024 will bring clearer data to lenders, investors and appraisers about property prices.
Perceptions that interest rates have peaked will help improve trading volumes and stabilize prices, but it will take time and continued interest rate stability to unlock additional capital accumulation. In early 2024, the US is most advanced in its price adjustment cycle, followed by Europe and the Asia-Pacific region. But in the real estate market, the most difficult thing to judge is time. Waiting for the perfect moment to act on medium- and long-term strategies can result in missing out on good opportunities and falling behind competitors.
Snapshot in individual sectors
There are good growth opportunities in a number of sectors and geographic micro-markets and JLL sees good options for buying distressed assets and rebalancing portfolios. For investors, attention to diversification will take different forms in markets around the world, and even sectors that are now "out of favor" still have interesting segments and a place in global diversified portfolios.
Housing will remain a bright spot in 2024 and beyond for many reasons. The world's growing population is increasingly moving towards cities, which means they need more housing for a wider range of household types and sizes. Long-term structural trends such as population aging, demand for education and housing affordability remain important drivers of demand and will continue to benefit housing investment in most markets around the world. In the short term, some markets will see trouble and oversupply in 2024 as interest rates and the concentration of new construction in growth markets have an impact.
The growing focus on regionalization and local industrial production will continue in 2024 as efforts to bring manufacturing closer to customers and to diversify supply chains expand. Expanding government stimulus will bring new manufacturing back to advanced economies in North America and Europe, supporting demand for industrial and logistics real estate. Urbanization and the development of consumer preferences that prioritize even shorter delivery times will mean an increased focus on urban logistics. These trends will benefit not only the largest cities, but also the fast-growing areas.
Source Investor. bg
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