Tag: Real estate of US

Real Estate 2025 The Tides Are Changing! Real Estate 2025: Real estate investors and developers should be bracing for a rebound in industry trends as post-pandemic disruption fades and positive cyclical forces strengthen. The Federal Reserve is one of the most powerful cyclical forces. Its pivot to reducing interest rates indicates a peak for inflation and construction costs—and the pivot is helping real estate markets to clear, boosting transaction activity. However, not all dealmakers are prepared to fully commit. After all, rate cuts also indicate a slower economy and that could affect net operating income (NOI) growth. The path to renewed vigour could take surprising detours. The specific contours of what happens next won’t be exactly like what’s happened before. Today’s critical real estate investment factors are supply dynamics and a modernised stock of buildings. For example, newer office buildings offer amenities (the so-called “flight to wellness”) that make them preferable to the languishing stock of ageing buildings. And in housing, there are too few developments catering to senior citizens whose ranks are growing by several thousand every day. More opportunities abound as new cycles in real estate emerge. In this Emerging Trends in Real Estate report, we illustrate what’s improving and share the views of our survey respondents as they gauge real estate’s prospects for recovery and renewal. Real Estate 2025 firm profitability prospects: Top real estate markets for the year: Nashville, Phoenix dethroned; Dallas/Fort Worth on top; Florida comes roaring back. The story around the top real estate markets is the same, but the leaderboard changes. The Sunbelt is home to the top markets, with Nashville and Phoenix falling several rungs while Dallas/Fort Worth ascends to the top spot. Florida is the comeback kid, with two cities placing in the top five markets. In this year’s report, we’re adding a new discussion point we’re calling “movers and shakers.” These are markets that show significant year-over-year improvement based on our metrics and should attract institutional investor interest (see accompanying map). It’s a diverse group, with each one offering different portfolio diversification characteristics, ranging from skyscraper-laden Manhattan to history-laden Charleston, South Carolina. Investment pendulum swings back to asset selection As we enter a new cycle of investment, discussions from the industry more and more focus on changing performance drivers and an elevated role of active asset selection and management. There’s no confusion: Market conditions are shifting, and so too is the return-delivery playbook. Selecting the right assets has always been critical for commercial real estate investors. Every property is unique, so investors cannot buy the market. Therefore, they must reconcile top-down allocation strategies driven by decisions related to exposure across geographies and types of property with granular, bottom-up asset-selection and asset-management decisions that are sharply focused on the needs of each particular investment. The tension between these two approaches has increased with the increasing dynamism in the real estate market—from macroeconomic shifts through technological disruption and changes in tenant requirements. Investors must understand the drivers of performance, whether from strategic allocation or asset selection, to maximise returns. Underwater assets come to light Ongoing price declines and a regime of higher interest rates raise questions about the ability of some borrowers to repay or refinance their commercial-property loans. Worries about borrowers and their lenders are global. In Europe, property prices and values have been substantially corrected since mid-2022, meaning most of the properties on investors’ books are likely to be less valuable today than when they were bought, especially if they were bought at or close to the peak in 2021. When asset values do not keep up with loan liabilities, refinancing prospects become pretty bleak. We estimate that around USD 500 billion of loans will mature in the U.S. in 2025 based on data up to the end of Q3 2024. We valued each asset at its market at Q3 2024, applying our hedonic price indexes; we discovered that if the loans were to mature at such levels, nearly 14% would be reported as underwater as the current values of the asset fall below the loan balance. Investors come to terms with physical climate risk Extreme weather events, which can negatively impact the value of real estate assets through higher insurance premiums as well as repair and disruption costs, are forecast to become more frequent. But is the risk being priced appropriately given the potential costs? We analyse the MSCI Real Capital Analytics transaction database to identify any relationship that might exist—or not—between transaction yields and physical climate risk, utilising the MSCI Climate Value-at-Risk Model. Only a marginal spread in transaction yields emerged between apartment properties with high or very high physical climate risk and those with low or medium risk in an analysis of multifamily properties in the Southeast U.S., which includes a large portion of the country most prone to extreme weather events. Indeed, higher-risk assets traded at a premium to those deemed to be at lower risk. Conclusion: The data centre market, of course, has its own risks. For one, managing a data centre involves many unique considerations and acumen that lie distinctive to the asset class. It also brings much lower data transparency than traditional property types do, with the ones for rents and transaction yields typically being harder to find. Investors with more history in the sector, as well as those with larger portfolios, possess quite significant informational advantages over new entrants.