投稿人
Tim Wang, Ph.D.
Head of Research,
Clarion Partners
Positive macro outlook
Heading into 2024, the US economy remains resilient despite tightening monetary conditions and heightened geopolitical uncertainties. Strong consumer spending and job growth have been a bright spot along with significant federal stimulus. As of Q3 2023, inflation had fallen considerably from its peak in mid-2022. If the current trends continue, the Fed may pivot in 2024, which would moderate interest rates and stabilize the capital markets.
Higher financing costs have been a significant hurdle in real estate underwriting. The large pricing expectations gap between buyers and sellers persists. Furthermore, the wave of maturing real estate loans poses significant refinancing risk. Still, there is a near-record amount of uncommitted dry powder.1 Clarion Partners believes that 2024 may see greater stability in asset pricing. If investor sentiment improves in 2024, more real estate deals should be transacted.
Healthy commercial real estate fundamentals
Overall, we believe US property supply and demand fundamentals are generally healthy except for office, mall, and high-street retail. Most sectors have experienced near-record high rent and low vacancy levels. More conservative lending conditions have led to a sharp decline in new construction starts, which should moderate new supply and strengthen rent growth from 2025 to 2026.2
Looking ahead, we expect industrial rent growth to outperform given robust ongoing demand for Class A warehouse space and vacancy near historical lows. Demand for multifamily has strengthened amidst worsening for-sale housing affordability, and we expect new supply deliveries to abate after 2024 and strengthen rent growth thereafter. After several years of muted new supply, the availability rate of open-air shopping centers has hit a two-decade low, which also bodes well for the sector’s future rent growth. At the same time, more capital is being allocated to alternative property types. Self-storage, life sciences, and single-family rentals have exhibited core-like characteristics, such as durable cash flows and lower volatility.
Clarion Partners continues to focus on several investment themes in 2024, including the flight to quality assets, housing shortage, affordability crisis, net migration to the Sun Belt, e-commerce boom, aging population, innovation economy, and sustainability.
Looking forward
Private real estate has offered attractive risk-adjusted total returns over the long term. Clarion Partners is cautiously optimistic about 2024 and believes that the current market dislocations may create attractive buying opportunities over the next 12 to 18 months. Potential investment risks, include elevated inflation, higher-for-longer interest rates, and a potential recession. As such, it is prudent for investors to monitor macro developments closely, underwrite new investments conservatively, and deploy capital selectively.
Endnotes:
- Preqin. November 2023.
- CBRE, U.S. Census Bureau. November 2023.
WHAT ARE THE RISKS
Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.