News headlines and social media alike point to a confusing outlook. Slightly higher inflation and ongoing questions about tariffs add uncertainty when it comes to economic growth prospects.
It could also be assumed that such confusion would dampen the commercial real estate industry. Not so fast. According to Cushman & Wakefield’s March 2024 “Market Matters” newsletter, economic growth is anticipated to slow down. However, “a recession scenario is not currently outlined as our base case.” In other words, “the macro outlook remains cautiously optimistic.”
One reason for this somewhat positive viewpoint is because of the new commercial real estate cycle. “The CRE capital markets are cyclically evolving and adapting to a normalized interest rate and yield environment,” Cushman & Wakefield analysts commented. While the moves haven’t been great for valuations, “we are two years into the process, and market participants across the full spectrum of the capital and debt markets are finally recalibrating their strategies for this next investment cycle,” the report commented.
Additionally, despite the “chaotic political policy landscape and decelerating macroeconomic backdrop,” Cushman & Wakefield analysts anticipate that the CRE capital markets will continue to gradually recover due, in part, to the following fundamentals:
Aging demographics will spur demand for senior housing and healthcare. “Medical outpatient buildings will be buoyed by the aging U.S. population as well,” the newsletter predicted.
Housing affordability. While millennials are aging into their 40s, homeownership is still an issue due to affordability. As a result, traditional multifamily and build-to-rent single-family homes are helping to fill the gap.
Technological advances. “The explosion of cloud computing, artificial intelligence (AI), and digital tools has sparked near-insatiable demand for high-quality data centers,” the newsletter said. This has led to higher data center demand, causing “data center construction pipelines to explode.”
In closing, Cushman & Wakefield analysts advised the importance of steering “through the daily minutia and whipsaw of the financial and political policy environment” while paying attention to the above fundamentals. Doing so will “transcend cycles and drive evolution throughout the built environment, which will serve investors over the long run,” the newsletter said.
The post CRE Investment and Macro Trends: Cautious Optimism appeared first on Connect CRE.
