Real Estate Pulse - Q1 2024
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Standing on Solid Ground
Fourth quarter property performance capped a year of pervasive pressure in response to the interest rate tightening that began in early 2022. Commercial real estate investment performance remained positive through most of 2022 as it typically lags macro-economic developments. The first crack occurred in the fourth quarter of 2022 with a negative 3.5% total return. The fourth quarter of 2023 produced the fifth consecutive negative quarter bringing 2023 full year total return to a negative 7.9%.
Additional highlights
- US commercial property investment total return performance was negative through all four quarters of 2023.
- Higher interest rates stressed property values and constrained refinancing property debt and financing property purchases.
- Expectations for an improvement in the pace of transactions are grounded in the gap between recent transactions reported by Real Capital Analytics and the property index calculated by Green Street.
- Excess supply of apartments and industrial space in some metros stressed rent growth; office remains unsettled.
- But, surprisingly strong economic growth in 2023 sustained NOI growth for all four property type sectors.
- Positive economic growth and interest rate cuts in 2024 are positive for CRE but further value decline is possible.
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Rethinking Overlay Manager Diversification
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