2024 Mid-Year Outlook

Global M&A Trends in Real Estate

Global M&A Trends in Real Estate hero image
  • Insight
  • 8 minute read
  • June 25, 2024

Optimism among dealmakers grows for an uptrend in real estate M&A activity, powered by the broadening of asset classes, the growing role of private credit and the focus on value creation.

Tim Bodner

Tim Bodner

Global Real Estate Deals Leader, Partner, PwC United States

Market dynamics, digital innovation and sustainability factors are triggering structural changes in real estate, evidenced by the widening of real asset classes from the traditional five (retail, industrial, multifamily, hospitality, and office) to higher-growth sectors, including student housing and data centers. In addition, a higher-operating-cost environment has prompted real estate managers to reassess and make strategic changes to their current operating models, looking for value creation opportunities through M&A deals and expanding their risk profiles. These new developments have also been attracting nontraditional investors, including high-net-worth individuals, family offices, private credit, sovereign wealth and infrastructure funds. They are stepping in to fill the funding gap amid the pullback from traditional bank and life insurance investors.

Distressed sale activities are tempered relative to expectations. Given the current high cost of capital, M&A activities are limited to date. However, the business climate is expected to be more favorable as rates start to ease. Overall, it is anticipated that there will be an increase in real estate M&A transactions in 2024 as existing investors adapt to the new operating environment and opportunistic investors capture new investment opportunities.

“Despite negative headlines, the amount of M&A activity occurring in today’s market is substantial—and accelerating—as market participants collaborate to find solutions to our challenges and focus on what they can control.”

Tim Bodner,Global Real Estate Deals Leader, Partner, PwC US

M&A spotlight: Student housing

Colleges and universities in many countries have been unable to keep up with the demand for student housing and projections from the National Center for Education Statistics in the US and other countries forecast further growth in college enrollment over the next several years. 

Data from RealPage, a provider of property management software, indicates that as of April 2024, pre-lease occupancy rates for student accommodation at 175 US universities for the coming 2024–25 school year were 72%, compared to pre-2023 levels of less than 70%. Rent increases of 5–6% over the prior year among the same US universities highlights the disparity between the demand and supply of student housing. 

Although overall transaction volumes in student housing remain low, recent deals illustrate how investors are recognising the growth potential of the student housing sector. In the first half of 2024, notable deals in student housing included KKR’s proposed acquisition of Blackstone Real Estate Income Trust’s 19-property portfolio for $1.6bn and Mapletree’s acquisition of Cuscaden Peak’s 31-property portfolio for $1.3bn.

Momentum for M&A in the student housing sector is expected to increase given the asset class’s fundamentals and investors’ search for recession-resilient investments. 

M&A spotlight: Sovereign wealth funds and sustainability

In 2024, many of the world’s major economies, including India, Europe, the UK, and the US have national elections. The key impact of these elections on global real estate investment will be related to sustainability and affordable housing policies. Governments around the world are increasingly embracing environmental, social, and governance (ESG) factors in sovereign wealth and pension funds’ investment decisions. These include the European Commission’s decision to sell half of its office buildings in Brussels for redevelopment, the Norwegian Sovereign Wealth Fund’s announcement that it will continue to advocate for real estate investments based on ESG factors, and others. 

Similar investment themes are expected to be prominent in the private real estate investment world with brown-to-green funds driving investments in green projects to decarbonise the existing brown real estate assets. Increasingly, managers are expected to consider climate impact in making investing decisions to ensure compliance with sustainability regulations. Data centers—one of the real estate sector’s investment hot spots—are facing sustainability regulatory scrutiny due to their massive energy consumption and heat emissions. Compliance with the strengthening regulations requires the sector to transform itself to embrace green measures and minimise environmental impacts. M&A will likely help companies make these transformational changes.

M&A values in the first half of 2024

Real Estate deal values, 2020-Q1'24

Note: Total real estate transaction values (excluding development properties) based on properties and portfolios of $10m and greater.
Source: MSCI Real Data Analytics

In the first quarter of 2024, global real estate deal volumes declined, primarily due to the uncertain interest rate environment and the continued disconnect between buyers and sellers on valuations. We anticipate the interest rate cuts announced by the European Central Bank in June 2024 and the likelihood of a rate cut by the US Federal Reserve Bank will result in greater stability in the market and trigger transactions across asset classes.

Key M&A themes for real estate

Initial expectations for the 2024 real estate market were that distressed sales would lead market movements, given the volume of maturities, a decrease in real estate valuations, and continued uncertainty in the interest rate environment. The volume of US commercial real estate loans projected to mature in 2024 is estimated to be $600bn, according to MSCI Mortgage Debt Intelligence. The current wall of maturities is more daunting when a similar volume of maturities in 2025 and 2026 are factored in. 

As noted above, global real estate transaction volumes continue to decline. However, bright spots exist, such as the positive news on interest rate cuts. Additionally, lessons learned from the Global Financial Crisis (GFC) are leading lenders and borrowers to consider refinancings and modifications, rather than foreclosure. In doing so, they hope that an extended term will allow for more favorable market conditions to materialise. This trend played out in 2023 as $214bn of US real estate loans that were expected to mature were either modified or refinanced. In Europe, there has been an increase in the volume of distressed sales, but total activity is much lower than the post-GFC years. Globally, many market participants are taking a more solution-based approach to the pending maturities and as such, there may be less opportunities for those looking for significant distress in the market. As a result, investors seeking higher returns will need to look to alternative property types and find alternative sources of capital that are more comfortable with increased risk profiles. 

The real estate sector is evolving as investors search for yield and as the users of real estate assets reevaluate the way they interact with the built environment. The composition of real estate portfolios is also changing, and investor interest in what were previously described as niche asset classes such as infrastructure and student housing is growing. Many of the emerging asset classes are complex and operationally intensive, which affects return expectations, investor reporting mandates and personnel requirements for investment vehicles.

According to MSCI, in the first quarter of 2024, global transaction volume of income producing properties was $130.2bn, a year-over-year decrease of 19%. The decline in volume can be partially attributed to the structural changes in historically significant investment sectors, such as office buildings. As discussed in PwC and the Urban Land Institute’s Emerging Trends in Real Estate 2024 report, there is a painful need for capitulation from the traditional asset classes. 

Technology requirements and housing shortages have resulted in investors shifting their focus and portfolio composition from traditional asset classes to data centers, student housing, and build-to-rent residential. Despite the reduction in overall volume, sales volume in the first quarter of 2024 for alternative sectors increased 41% year-over-year and represented approximately 70% of the total volume during the quarter. 

There is also a growing trend of premium retailers buying up real estate in prime locations across the world to accommodate their luxury goods collections and leverage brand equity to expand into hospitality and residential sectors. The success of more operationally intensive strategies may be necessary to access higher returns in the current interest rate environment.

Exposure to losses from declining commercial real estate values has led to a lending retreat by traditional banks who have been tightening lending standards. This has created opportunities for private lenders to fill the funding gap. According to the IMF, in 2023, total non-institutional lending to corporate borrowers was approximately $2.1tn; that amount is projected to increase in 2024 given the current interest rate environment. 

From a real estate perspective, PERE reports that the largest real estate credit managers have increased their 2024 fundraising goals by approximately 19% year-over-year. Other sources of capital are emerging on the equity side, such as family offices, sovereign wealth funds and non-bank institutions, which have capital available to deploy.

Historically, leverage and a low interest rate environment were often sufficient to generate an adequate return on investment. With the current macroeconomic environment of inflation and higher interest rates, real estate fund managers face a paradigm shift, and they will need to find operating efficiencies and other ways to optimise operations to generate returns and create value. 

The increasing focus on operational effectiveness has caused managers to consider how their existing corporate infrastructure meets the needs of their investment strategies. Additionally, real estate firms are considering new strategies, including ground-up development and real estate credit. This strategy shift requires a realignment of talent with the right skillsets to run new operations. This emerging trend of addressing the talent gap has been observed in recent platform deals such as Pretium’s acquisition of property management platform BH Management Services in May 2024 and talent acquisitions such as Blue Owl’s hiring of the previous Global Head of Real Estate Credit at GIC to lead its newly created real estate lending arm. Strategic acquisitions related to new or adjacent investment theses will be necessary to efficiently drive returns and effectively enter new markets in 2024. 

Key actions for real estate dealmakers in the second half of 2024

Real estate dealmakers who are successful at creating sustained outcomes will be those that are able to quickly pivot their strategy to capture the right opportunities, attract new talents, and continue to drive value creation. In a dynamic real estate market, agility and being strategic in aligning with the direction the market is going will be an advantage. Dealmakers who are well prepared will be best positioned to act quickly when the right opportunities arise. 

Our commentary on real estate M&A trends is based on data from industry-recognised sources, from PwC and the Urban Land Institute’s Emerging Trends in Real Estate® 2024 reports for Europe, Asia Pacific and the Americas and from our own independent research. Data on US student housing occupancy rates and rent increases are as of April 2024 and based on data from RealPage. Global and regional real estate transaction values referenced in this publication are for non-development properties with a value of $10m and greater based on data through 31 March 2024 provided by MSCI Real Capital Analytics. Data on US commercial real estate loan maturities is based on data as of 31 December 2023 from MSCI Mortgage Debt Intelligence. Non-institutional lending to corporate borrowers data is based on 2023 figures from the IMF. Fundraising by the largest real estate credit managers data is based on data from PERE. Certain adjustments to source data have been made to align with PwC’s industry mapping. All dollar amounts are in US dollars.

Tim Bodner is PwC’s global real estate deals leader. He is a partner with PwC US. Haley Anderson is a director with PwC US. Anh Pham is a senior manager with PwC US.

The authors would like to thank the following colleagues for their contributions: James Broadley, Andy Cloke, Richard Garey, Mario Alberto Gutierrez, Michio Ikeda, Jason Leung, Gareth Lewis, Rachel Smith and Steven Weisenburger.

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Want to know the M&A trends we expected in the beginning of 2024?

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