Five Emerging Opportunities in Real Estate Investing in a New Economic Era

Sum­ma­ry: We are clear­ly at a moment of tran­si­tion as we stand on the thresh­old of a new eco­nom­ic regime, but there are sev­er­al clear signs of pos­i­tives in this ​“lim­i­nal space.” 

By David Stein­bach, Glob­al Chief Invest­ment Offi­cer at Hines

As I reflect on where mar­kets stand at this point in 2024, I keep com­ing back to the idea of ​“lim­i­nal space.” The term derives from the Latin word ​“limen,” mean­ing thresh­old. It’s com­mon­ly used to describe the tran­si­tion from one state to anoth­er. In archi­tec­tur­al terms, this con­cept trans­lates to areas like hall­ways or stairways.

I think this is espe­cial­ly rel­e­vant to what we’re expe­ri­enc­ing in mar­kets as we move fur­ther away from unusu­al­ly low inter­est rates to a dif­fer­ent environment—crossing the thresh­old to a new eco­nom­ic regime. Despite the uncer­tain­ty that’s inevitable dur­ing times of change, this jour­ney may also present attrac­tive invest­ment oppor­tu­ni­ties for those who know where to look:

1. Vin­tage Tim­ing: His­tor­i­cal­ly, some of the best fund vin­tages have occurred when val­ues are cor­rect­ing. For exam­ple, 1993 espe­cial­ly stands out as a year where book val­u­a­tions were still two years away from find­ing a bot­tom, but funds launched that year deliv­ered the sec­ond-best vin­tage in the his­to­ry of Preqin’s North Amer­i­can funds data. Giv­en that con­text, his­to­ry would sug­gest that 2024 may be an excel­lent vin­tage to put fresh cap­i­tal to work.
2. Liv­ing: Now that the chaos of pan­dem­ic migra­tion has eased, new demand has emerged from the chang­ing needs of Mil­len­ni­als, now the U.S.’s largest group of home­buy­ers.¹ Mean­while, an acute hous­ing short­age is being exac­er­bat­ed by pres­sures from high­er inter­est rates and dis­rupt­ed sup­ply chains. In this land­scape we’re see­ing increased con­fi­dence in long-term appre­ci­a­tion and rental yields, with a grow­ing trend towards build-to-rent communities.
3. Retail: We think this sec­tor has already emerged from its ​“struc­tur­al shift” and is quick­ly devel­op­ing into a high-con­vic­tion area. Even with low­er demand, mut­ed sup­ply has result­ed in his­tor­i­cal­ly low vacan­cies.² We’re see­ing poten­tial to invest in the right loca­tions and sub-types to take advan­tage of a recov­ery in rents and val­ues. We also expect man­u­fac­tur­ing to exert increased influ­ence in indus­tri­al demand over the next few quarters.
4. Office: Not all office seg­ments are cre­at­ed equal. For exam­ple, tro­phy-grade office has con­tin­ued to see pos­i­tive demand despite broad­er chal­lenges. In fact, this seg­ment of the U.S. office mar­ket makes up just 6.5% of over­all inven­to­ry, but has gar­nered more than 25% of pos­i­tive net absorp­tion since 2000.³ As more work­ers return to work, com­pe­ti­tion for these more desir­able spaces should only increase. We must also remind our­selves that work-from-home is increas­ing­ly more of a U.S. trend—with more than 70% of the work­force back to the office in oth­er regions⁴, so we would argue that the office invest­ment oppor­tu­ni­ty is high­er con­vic­tion globally.
5. Geo­graph­ic Diver­si­fi­ca­tion: While glob­al diver­si­fi­ca­tion may offer investors and real estate allo­ca­tions a broad­er and more com­pelling invest­ment the­sis over the mid- and long-term, we’re becom­ing increas­ing­ly bull­ish on the U.S. mar­ket over­all. Con­tin­ued growth is expect­ed over the sec­ond half of 2024 in the U.S. thanks to a resilient labor mar­ket and strong con­sumer spend­ing. That strong eco­nom­ic growth is like­ly to serve as a foun­da­tion for strong real estate fun­da­men­tals performance.