Hines released its 2024 Global Investment Outlook report titled, “Disciplined Capital, Prospects Ahead.” The report provides a comprehensive analysis of the current state of the commercial real estate market worldwide, highlighting several promising signals amid ongoing challenges while offering strategic insights for investors.
Global Chief Investment Officer David Steinbach said, “As we navigate through a difficult market environment, it’s crucial to separate the noise from the deeper signals around us. Globally, transaction activity remains muted as investors continue to grapple with the new realities of higher rates and the current capital-constrained environment. In 2024, we expect to see a compelling investment window as pricing resets and opportunities arise from the funding gap.”
Sectors in Our Sights
Leveraging proprietary research methodologies and global expertise, the insights reflected in this report are reflective of Hines’ presence in 383 cities across 30 countries and offer investors a nuanced perspective into the regional sector opportunities that exist in 2024.
Europe
Europe is further along in its cyclical reset than other regions. It is generally acknowledged that the European Central Bank tightening campaign is nearly over and that fewer banks are tightening lending standards. Adding support to the case for the region – there are relatively low vacancies against a constrained supply pipeline that never fully rebounded from the Global Financial Crisis or debt troubles of 2007 through 2014. Combined with a depleted construction workforce, continued growth of knowledge-intensive employment, and the benefits of diversification, quality opportunities in Europe will likely continue to emerge.
- Retail – The recovery has hit a pause button due to a slowdown in consumer activity. In-store retailers show positive sales signs, while online retailers grapple with increasing fulfilment costs and thin profit margins. Currently, investor appetite is low, but a potential return is possible with a shift to lower prices, reduced rents, and positive fundamentals.
- Office – There’s less hesitancy to return to the office or downsize space. Tenant preferences now favour modern, high-quality assets with strong sustainability credentials in well-connected Central Business District (CBD) submarkets. Hines anticipates worsening supply shortages in prime locations like London West End and Paris CBD, potentially driving up rents in the coming years.
- Living – There’s a chronic undersupply issue, exacerbated by policymakers discouraging new supply, which is especially impacting affordable housing. Shifting demographics, driven by rising interest rates and worsening mortgage affordability, have created attractive prospects in the growing single-family rental sector.
- Industrial – Occupier demand is cooling across various sectors, despite robust rental growth. Indications from e-commerce spending suggest a potential near-term slowdown. Hines anticipates solid mid-term rental growth, particularly in major supply-constrained population centres like Paris, Madrid, Milan, and Stockholm, which are poised to outperform.
Americas
The investment signals in 2023 provided a mixed message. Most economies in the region (the U.S., Latin America, and parts of South America) are generally doing well by traditional measures, but real estate is experiencing a cyclical reset. The U.S. recovery is lagging Europe and Asia but seems to be showing signs of life, with transaction volumes possibly on the rise and bank lending standards finally ready to relax. In Canada, Hines expects some pain as the economy continues to contract and high mortgage rates take a toll on consumers, but remains optimistic about the market’s resilience and eventual rebound.
Across the Americas, growth in certain sectors and regions, combined with projected distressed sales projected to peak in 2025, might be a call to action for long-term investors with capital.
- Retail – After a prolonged period of lacklustre performance, the retail sector has now achieved a state of stability and has reemerged as a favourable asset class. Opportunities in grocery-anchored or open-air assets should abound.
- Living – While some U.S. multifamily markets, especially in the Sunbelt, may be overbuilt, there is a secular shortage of housing in nearly all the regions and countries where Hines invests. Additionally, a shortage of single-family housing should continue to support the for-rent sector.
- Industrial – Market fundamentals, though still above average, are decelerating after a two-year surge in demand. Vacancies are on the rise due to an increase in speculative construction. Investors should anticipate continued downward pressure on both fundamentals and pricing.
- Office – Vacancies in the largest 54 US markets have hit levels unseen since 1992, while the office construction pipeline is at a near-decade low. A continued bifurcation between premium and commodity assets will continue to intensify. Credit due to debt distress may provide a unique opportunity and will be an ongoing focus in 2024.
Asia
Asian real estate markets enter 2024 boasting several strong growth drivers. Regional growth is robust, and urbanization continues to drive demand. A positive combination of healthy demand and supply fundamentals supporting rental growth and price corrections should provide compelling opportunities for investors to increase their exposure to this dynamic region.
- Living – Multifamily fundamentals remain positive in the key markets of Japan and Australia, where vacancies remain low. In Australia and New Zealand, strong immigration has supported demand. In Japan, inflation is poised to maintain, with positive wage growth leading to continued rental growth.
- Retail – New supply remains well-contained, particularly in Australia. High street retail in cities like Tokyo may show improved fundamental performance. Cap rates remain the highest by sector and may see retail becoming more favourable in 2024.
- Office – Fundamentals have remained generally healthy in the region, with low vacancies in Singapore, Japan, and South Korea, reflecting a limited supply pipeline. Hines expects to see demand for premium versus commodity space intensify.
- Industrial – Regional rental growth for warehouses has been strong, led by Australia. While Hines expects rental growth to decelerate in 2024, it will likely remain positive but with potential modest upward pressure on cap rates across the region.
