Real estate’s next chapter comes into focus

Last year, the plan for the real estate industry was simple: Ride out current risks and reposition the business for a period of sustained growth and improved returns.

However, reality has set in for the industry leaders we interviewed for this year’s Emerging Trends in Real Estate. They no longer expect a U-turn to the way things were before the pandemic. Instead, they’ve accepted the possibility that a lot of people won’t be returning to the office after all, or at least not nearly as often. This has profound implications not only for office owners, managers and brokers, but also the nation’s downtowns and other property sectors that depend on a vibrant office market.

There’s also reluctant acceptance in the industry that interest rates will remain high for at least the next year and possibly even longer.

Even good news, such as investors being eager to acquire new assets, is tempered by bleak sector data. For example, despite available equity, transactions are down — and many in the industry point to instances where buyers and sellers simply can’t agree on pricing because the dearth of sales limits price clarity.

On a positive note, respondents to this year’s Emerging Trends survey believe the worst of inflation is behind us, which should give the Federal Reserve a reason to pause interest rate hikes.

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“Despite the economic headwinds and the challenges obtaining credit, there are opportunities available for high-quality properties that meet the needs of today’s investors and tenants. Firms must learn to adapt their growth strategies to succeed in this period of higher-for-longer interest rates.”

-Andrew AlpersteinPartner, Real Estate, PwC US