PwC predicts brighter future for investors taking the long view.

January 2, 2024
1 min read

Financial services giant PwC is optimistic about the future of the commercial real estate market, despite its current struggles due to the pandemic. PwC believes that the worst of inflation is behind us and that the Federal Reserve will pause or reverse its interest rate hikes. This will lead to lower interest rates, which in turn will result in increased investor appetite for acquiring new properties. PwC specifically highlights affordable housing, digital infrastructure, and other residential properties as potential areas for investment.

A key factor in the potential improvement of the market is the reopening of the real estate debt market. Lower interest rates are expected to encourage lenders to issue loans to buyers, as the interest rate outlook becomes more favorable. PwC has already seen an increase in mortgage-backed securities for commercial real estate in the past 30 days after a decline throughout most of the year.

The pandemic has had a significant impact on commercial real estate, with plummeting building prices and empty offices causing many owners to default on their loans. Downtown office vacancy rates have soared to 17.3%, and the vacancy rate for suburban office space is 16%. However, economists now predict a “soft landing” for the U.S. economy, which will lead to slower economic growth, moderate job growth, and higher interest rates.

Private investment in affordable housing is also expected to play a significant role in the market. Many investors are recognizing the importance of increasing housing supply and are seeking to invest in new projects as well as existing assets. However, critics argue that private investment in affordable housing can actually take homes away from those who need low rents the most.

Overall, PwC’s survey of real estate industry leaders shows that while investment returns are expected to stay at current levels in 2024, they are expected to be lower over the next five years due to the higher interest rate environment. Despite these challenges, PwC remains optimistic and believes that patient and creative market participants who are willing to take the long view can find significant opportunities in the commercial real estate market.

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