Global real estate values have reset after rising rates drove repricing of 20% to 25% over the past two years. As capital markets heal after sharp dislocations and values bottom across most sectors, opportunities abound amid gathering momentum. Against that backdrop, increasingly confident investors lifted private real estate to its first positive return in seven quarters in the third quarter, drawing attention to an attractive entry point marked by more welcoming monetary conditions.
LOWER RATE TAILWINDS
With lower interest rates fueling a brighter outlook for 2025, we believe it is a great time to explore real estate opportunities across the risk spectrum. Lower rates should foster a better dealmaking environment that boosts long-term growth potential.
AN EMERGING NEW CYCLE
One of the nice things about real estate is that it is cyclical, and the cycles tend to be predictable. Historically, income remains steady through cycles with healthy capital appreciation over the long term. The relatively few drawdown periods on record tended to be short-lived and followed by prolonged recovery periods.
PREVAILING STRUCTURAL GROWTH THEMES
- Demographic shifts: Aging baby boomers and millennials are the two largest demographic segments. A significant housing shortage for these groups is driving surging demand for senior living, affordable housing, and self-storage. Demographic trends are also creating interesting opportunities in necessity-based retail and life sciences.
- Digitalization: Continued digital transformation is materially changing the real estate landscape in areas such as logistics (distribution and last mile), office with knowledge-based tenancy, and life sciences. As e-commerce grows, industrial and retail play complementary roles, with e-commerce driving industrial demand while bricks and clicks support well-located retail that offers daily use and services.
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