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In 2022, the plan for the real estate industry was simple: Ride out current risks and reposition assets and portfolios for a period of sustained growth and improved returns.
However, industry leaders no longer expect a return to a pre-pandemic real estate market. Instead, they have accepted the possibility that many employees will not return to the office, or at least not nearly as often, and that the funding landscape has significantly shifted, with reduced credit availability and higher-for-longer interest rates.
Despite these headwinds, there are many green shoots. For example, we believe the worst of inflation is behind us, which should give the Federal Reserve a reason to pause interest rate hikes or begin reversing them. Such moves may result in a reopening of the real estate debt market. In addition, burgeoning investor appetite for the acquisition of new and high-quality assets remains, particularly in emerging property subsectors such as wellness, digital infrastructure, affordable housing and other residential-oriented themes. Opportunistic investors also continue to watch and wait on the sidelines, ready to deploy record levels of dry powder.
These factors, coupled with megatrends, which are driving change across the industry, keep us optimistic as we see significant opportunities for patient and creative market participants across the investment landscape who are willing to take the long view.
“As the industry continues to navigate this period of transition, recent market signals on inflation and interest rates are encouraging leaders to believe that the deals market in real estate may pick up sooner than anticipated.”