Research Briefing | Apr 12, 2024

Four themes are shaping US real estate markets

This year is set to be a turning point for commercial property markets in the US. A gradual easing of inflationary pressures alongside a steady, if unspectacular, year for GDP and employment growth should help to ease the market through the final leg of the post-Covid adjustment. But there are four important themes market participants will need to understand to navigate the short and medium term successfully.

What you will learn:

  • Rate cuts will come this year but only gradually. We believe the Federal Reserve will cut rates this year, and so looser monetary policy will help the refinancing of existing real estate deals heading into next year.
  • Generative AI will drive a wedge between real estate returns and economic growth. We think generative AI has the potential to significantly raise the outlook for US GDP growth (more so than in other countries), but that will be accompanied by a reduction in demand for some types of space – most notably offices.
  • The shifting geopolitical landscape has implications for the source of financing and the type of space in demand. We continue to think that the US will decouple from China either via industrial policy or the use of tariffs. Either way, foreign investment into US real estate is set to remain weak, and there should be an ongoing tailwind to the industrial sector as it seeks to replace parts of the global supply chain.
  • It is unlikely persistently high inflation will continue in the medium term, but interest rates are likely to be more volatile. The pandemic has shown that second-round effects after price shocks are a reality, and so we expect central banks to react more swiftly to nascent signs of inflation in the future.
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