Generational Shift in Commercial Real Estate

Generational Shift in Commercial Real Estate

March 01, 2024

Convergence of various factors paint a picture of opportunities for investors

For real estate investors eyeing opportunities, 2024 could mark a pivotal moment in the market, according to insights from Cohen & Steers, a renowned asset manager with decades of experience in real estate investment. As the commercial real estate landscape faces tumultuous shifts, astute investors have a chance to capitalize on what could be one of the most favorable investment climates of the century.

The events of recent years have set the stage for a unique investment window. In 2023, the commercial real estate market experienced a significant downturn, particularly in the realm of office properties. However, this downturn, while challenging for some, has laid the groundwork for potentially lucrative opportunities in the coming years.

A Key Indicator

One of the key indicators of the health of commercial real estate lies in publicly traded Real Estate Investment Trusts (REITs), which have served as a harbinger of opportunity, according to Cohen & Steers.

After reaching a peak in late 2021, listed REITs saw a sharp decline of more than 30 percent, hitting a trough in the fourth quarter of the previous year. In contrast, private real estate funds, which are valued quarterly, demonstrated more resilience, experiencing a decline of less than 20 percent during the same period.

However, the resilience of private real estate funds shouldn't lull investors into complacency. Cohen & Steers forecasts that private real estate prices have yet to fully reflect the losses witnessed in the public market. They anticipate a further decline of 5 to 10 percentage points throughout 2024 and possibly extending into 2025.

These projections indicate that the market has not yet reached its bottom, presenting an opportune moment for investors to enter or expand their real estate portfolios.

A Driving Force

One of the driving forces behind this anticipated market shift is the maturity of a record amount of commercial real estate debt over the next four years. As these debts come due, more properties are expected to enter distress, leading to increased availability of properties for sale. For savvy investors, this situation presents a fortunate circumstance to acquire assets at potentially discounted prices.

Moreover, the macroeconomic landscape further fortifies the case for real estate investment in 2024. Expectations of falling inflation rates, coupled with the Federal Reserve's potential decision to lower its benchmark interest rate, create an environment conducive to investment in real estate. Falling prices against a backdrop of decreasing inflation and accommodative monetary policy signal a strong vintage for private market investments.

Details Matter

The convergence of various factors, including the maturation of commercial real estate debt, market dynamics reflected in REIT performance, and broader macroeconomic trends, paints a picture of opportunity for real estate investors in 2024.

While challenges undoubtedly exist, astute investors who position themselves wisely stand to benefit from what could be a generational investment opportunity.

As the market undergoes transformation, those with the foresight and flexibility to adapt may find themselves well-positioned for success in the evolving landscape of commercial real estate investment.


Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Investing in Real Estate Investment Trusts (REITs) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

This article was prepared by MainStreet Journal.

Tracking #535405