The global outlook for 2024
- Report
- 15 Minute Read
- March 12, 2024
Real estate leaders are slowly becoming reconciled to a higher interest rate environment, while grappling with more fundamental challenges around the industry’s role in society, including making buildings fit for purpose in an uncertain future.
This report is based on interviews with senior property investment professionals and regional surveys conducted jointly by PwC and the Urban Land Institute in Europe, United States and Canada, and Asia Pacific, and is a key indicator of sentiments on global real estate.
Period of adjustment
Despite economic headwinds around the world, the senior industry players canvassed for this Global edition of Emerging Trends in Real Estate® believe there is potential for renewed investment activity following greater clarity on monetary policy in the United States, Europe and Asia Pacific.
The hope is that buyers and sellers of properties are starting to accept a higher-for-longer interest rate environment and will therefore find the middle ground on pricing that has been so elusive over the past two years.
With alignment on pricing comes the belief that real estate can recover from one of the worst investment downturns in years, although any upswing in activity is expected to be much more pronounced in 2025 than in 2024. But there is still a fair degree of caution in real estate, and diversification of risk by market and by sector will be critically important.
“While event risk remains high, 2024 appears to be a pivot point, moving towards greater liquidity in real estate markets. Though there are good reasons why investors have been hesitant, we're moving towards a period where there's greater clarity. It should be an opportune time to buy.”
Global investment manager
Although the industry has been in wait-and-see mode over the past two years because of short-term, cyclical forces, many are now looking to the long term. The message is clear that the driver of investor and occupier behaviour is no longer about the traditional property sectors, but increasingly about “the three Ds”: demographics, digital and decarbonisation.
Top cities for real estate investment in 2024
America | Europe | Asia Pacific | |||
Nashville | - | London | - | Tokyo | ▲ |
Phoenix | ▲ | Paris | - | Sydney | ▲ |
Dallas/Fort Worth | ▼ | Madrid | ▲ | Osaka | ▲ |
Atlanta | ▼ | Berlin | ▼ | Singapore | ▼ |
Austin | ▼ | Amsterdam | ▲ | Melbourne | ▲ |
San Diego | ▲ | Milan | ▲ | Seoul | ▼ |
Boston | ▲ | Munich | ▼ | New Delhi | ▲ |
San Antonio | ▲ | Lisbon | ▲ | Ho Chi Minh City | ▼ |
Raleigh/Durham | ▼ | Frankfurt | ▼ | Mumbai | ▲ |
Seattle | ▲ | Barcelona | ▼ | Bangkok | ▲ |
Source: 2024 Emerging Trends in Real Estate Regional Reports
Note: Arrows indicate changes in city rankings from 2023
Key trends
Housing affordability is once again at the top of the list of social-political concerns among industry leaders in North America, Europe and Asia Pacific, and it is unlikely to go away anytime soon. This is particularly the case in the US, which is working through the consequences of soaring house prices during the pandemic, followed by a doubling of mortgage rates.
One of the biggest challenges to affordability and increasing rent growth is making social housing viable for institutional investors. Some interviewees have suggested public policy support as a way of de-risking these assets.
Data centres are one of the most promising trends in the real estate sector, with every regional report ranking them at or near the top of investment prospects in 2024. Interviewees have consistently praised them for their high return on investment and high rewards for risks.
There is some resistance to data centres from policymakers for their high energy use, especially at a time when real estate is being scrutinised for its sustainability standards. National and city authorities in certain countries have imposed tougher environmental conditions on the development of data centres over the past year. One way forward may be through a greater focus on so-called “edge” data centres, which are smaller than conventional data centres and located closer to end users. Another approach to taking energy usage in this sector off-grid is emerging in West London, where some facilities have recently announced plans to recycle waste heat from nearby data centres and use it to heat 10,000 new homes and 2.7 million square feet of commercial space.
Fit-for-purpose Real Estate
The shifting preferences of both real estate occupiers and investors are creating new dynamics within the real estate sector, especially the growing importance of sustainability. Qualities like ESG performance and alignment with employees’ values are becoming important factors for companies deciding whether to occupy real estate. Offices are now expected to become physical embodiments of companies’ sustainability goals and the real estate sector is reacting accordingly, albeit slowly.
This trend is a tangible manifestation of demographic and technological shifts that are having major ramifications for real estate. Employee preference is increasingly driving demand in the corporate office sector. High-quality offices are increasingly in demand, with companies willing to spend a little more to attract top talent. As leases end, companies are increasingly opting to not renew leases in office spaces that do not align with employee preferences or ESG needs, and instead relocate.
“Employees want a really rich, diverse neighbourhood, and companies know that's going to continue to attract the kind of people that they want.”
Global investment manager
As is often the case, occupier-driven changes (like those witnessed in retail and office) can, in hindsight, end up being quite significant, but also sometimes go below the radar. With that in mind, our research for this Global edition has sought to consider some possible future changes over the next ten years and what that could mean in terms of how real estate investors and operators need to rethink their business and delivery models, embrace innovation and create value beyond the physical space so as to remain relevant and competitive.
Thomas Veith
Global Real Estate Leader, Partner, PwC Germany
Email
Hide
