The commercial real estate market has been in recession since central bankers began increasing interest rates in 2022 to combat inflation. Investors, for their part, have been forced to reevaluate their portfolio strategies and are poised to reenter the market as policy shifts towards a more favorable capital market environment. We believe that commercial real estate investors will have the opportunity to re-engage in the transaction market across a broad risk spectrum and take advantage of more opportunistic pricing as the global real estate recovery takes hold.
Since 2022, both core and core-plus real estate have undergone significant repricing as higher interest rates have slowed investment activity and created pockets of distress within investor portfolios. Property values, according to the NFI-ODCE index, have fallen by 24% across all sectors—led by the struggling office sector—but declines have negatively affected all sectors, including apartment and industrial, which have remained favored by most institutional investors (Exhibit 1). We feel that a sustained growth environment, combined with more accommodating interest rates and significant re-pricing of real estate assets, provides an opportunity to generate attractive returns through a combination of income and growth.