The recent years have been humbling for specialists trying to predict economic, financial, and real estate market conditions, according to the latest report from JLL.

Key Themes for Outlook 2024:

Mixed Macroeconomic Picture: Economic growth and fundamental elements will be uneven and market-specific, with risks weighted towards the first half of the year, and a broader rebound likely as the year progresses.

Normalization: Post-pandemic extreme highs and lows in real estate sectors will revert to historical trendlines and offer more predictable outcomes.

Debt in Focus: Real estate credit strategies will remain in focus amid a high-interest-rate environment.

Strategic Investments: Balancing defensive and offensive strategies will be crucial for real estate investors.

Flight to Quality: In the generally oversupplied office market, tenants will face high competition for prime products in high-demand segments.

Mixed Macroeconomic Picture:

Economic conditions remain resilient until 2024, but the following year is expected to be uneven for many real estate markets and decision factors. Risks remain high, and signals of predictability will only emerge as the year progresses.

Markets continue to grapple with inflation and, in some cases, the risk of recession. However, central banks' progress in combating inflation became evident towards the end of 2023. This has led to a general market sentiment that interest rates are likely peaking; markets anticipate central banks' pivots and hope for a soft landing.

Nevertheless, considering the resilience of many global economies, policy rates are expected to remain high until 2024. The delayed effects of monetary tightening, geopolitical instability, and electoral uncertainty in major economies pose additional potential risks to outlooks.

The baseline forecast is for a moderation in economic growth in 2024 compared to 2023, with recovery prospects improving later in the year. The strongest growth is expected among significant countries in the Asia Pacific, especially in India.

European economies, especially Germany, face the highest risk of weak growth or even recession in the first part of the year. Meanwhile, the US and Australia are expected to see a decent pace of economic expansion, albeit below trend. In real estate markets, however, an extensive sectoral and geographical variation is expected in the upcoming growth cycle as the asynchronous adjustments of the last cycle conclude, and market participants navigate through current challenges.

Normalization and the Return of Predictability:

Inflation is decreasing in most major economies globally, implying greater predictability in consumer and producer prices, as well as construction costs, even though they will remain high.

Interest rates in most developed economies have now peaked after aggressive monetary tightening in 2022 and 2023, and policy rates are likely to remain stable until the start of the reduction cycle in the middle to the end of 2024. Costs will decrease. Market rates may still face volatility, but the direction is now downward, providing some predictability to future debt costs.

Pandemic-related disruptions – in consumer shopping habits, international trade, and e-commerce – have largely settled and will bring logistics demand more in line with historical growth trends, where development pipelines slow in more mature markets.

Office usage has improved globally and stabilized, especially in Asia and parts of Europe. In the U.S., return-to-office mandates have become more widespread, and we expect usage to continue to gradually increase in 2024, revitalizing central business districts with renewed daytime pedestrian traffic and retail demand.

Strategic Investments:

Perhaps the most significant commitment for real estate investors in 2024 will be balancing financial challenges and asset management in their existing portfolios with the desire to deploy capital for sought-after assets and capitalize on opportunities in the next 12 to 24 months.

A defining feature of successful investors will be ambidexterity: the ability to execute both offensive and defensive strategies, effectively deploy resources, and make confident decisions in an still uncertain climate. Many investment managers must grapple with near-zero to negative yields, creating additional challenges, including talent retention.

In a market where credit remains available and active, stability and predictability of interest rates will be more important for improving market activity than just the level of debt costs.

Real estate credit strategies will remain in focus amid the high-interest-rate environment, and new debt sources will emerge to complement financing options in markets and sectors where lenders are more cautious.

Given the decline in property values so far, there will be many situations where equity is needed to meet debt service obligations. However, loan maturities will catalyze transaction activity and, in some cases, difficulties. An increase in loan volume in 2024 will provide clearer data on property values for lenders, investors, and appraisers.

The sentiment that interest rates have peaked will help improve transaction volumes and stabilize prices, but it will take time and prolonged rate stability to unlock even more dry powder.

At the beginning of 2024, the U.S. is the most advanced in its price adjustment cycle, followed by Europe and then the Asia Pacific. However, the real estate market cannot be played solely from a temporal perspective. Waiting for the perfect moment to act on medium and long-term strategies risks missing emerging opportunities and falling behind competitors.

Sector Snapshots

There are growth opportunities in pockets of sectors and geographic micro-markets, and there will be opportunities in distress and portfolio rebalancing efforts. For investors, the focus on diversification will take different forms across markets worldwide, and even those sectors currently considered "disfavored" still have interesting segments and a place in diversified global portfolios.

Living sectors will remain a bright spot in 2024 and beyond for several reasons. An expanding global population is becoming increasingly urban, meaning cities require more housing as well as a broader range of household types and sizes.

Long-term structural trends, such as an aging population, demand for education, and housing availability, remain essential factors driving housing demand and will continue to benefit Living investment strategies across multiple global markets. In the short term, in 2024, some markets will face crisis situations and micro oversupply, as interest rates and new constructions focused on growing markets have an impact.

The growing emphasis on regionalization and local production will continue in 2024 as efforts to bring production closer to the customer and diversify supply chains expand.

The evolving global landscape of government stimuli will bring new production into advanced economies in North America and Europe, stimulating demand for industrial and logistics facilities. Urbanization and the evolving preferences of consumers prioritizing increasingly faster delivery times will mean increased focus on urban logistics. These trends will benefit not only major metros but also the growing Sunbelt region in the U.S.

Retail is poised for a comeback in 2024. Investors are returning to a sector that, at the beginning of the cycle, transformed demand and supply dynamics, yield and leasing profiles to offer attractive profits and renewed rent growth opportunities.

In the U.S., high-quality, well-located retail – especially grocery-based – has been one of the best-performing segments, with increasing investor allocations, as consumers remain resilient to COVID-era stimuli amid strong job growth and wages.

In Europe, the continued recovery of travel and tourism and the resurgence of positive real wage growth as inflation subsides will support turnover in a period when economic conditions would otherwise be weak.

In China, the inclusion of some retail forms in the CREIT scheme should support demand for retail assets; and the strong reception of India's first retail REIT in 2023 could set the stage for increased investments in high-quality malls in the coming year.

The global data center market is estimated to be one of the fastest-growing sectors in many geographic areas until 2026 and is also continually changing. The evolution of artificial intelligence (AI) from enthusiasm and hype in 2023 to rational and strategic adoption in 2024 – in the real estate sector and beyond – will lead to both an acceleration in demand for the number of data centers and changes in location, construction, and operating criteria for individual centers.

For example, AI infrastructure site selection criteria favor lower energy prices and lower land costs, and AI-era facilities will increasingly need to adapt to evolving hardware needs, such as advanced cooling facilities. Navigating the emerging opportunities and risks in 2024 in this unique sector will require strategic and operational expertise.

Corporate Hybrid Strategies

For real estate occupiers, we consider 2024 as a year to further consolidate workplace policies and align portfolio strategies with new ways of working and revised growth trajectories.

Occupiers are working to upgrade facilities and refine space requirements – location, quality, design, and amenities – to make the office "commute-worthy," support return-to-office mandates, consolidate employee engagement, and ultimately enhance performance.

There will also be a mindset shift as corporate real estate leaders move from operating static assets to managing dynamic workplaces, and occupancy levels and business requirements change on any given day or week. Technology will be more critical in 2024 than ever as organizations test and learn from AI pilots and strive to leverage and capitalize on the wealth of workplace data in their portfolios.

A particular area we see continuing to grow in 2024 is occupiers' focus on sustainability. Over 50% of the world's largest companies by market capitalization have announced science-based targets linking future construction demand to a carbon commitment.

Regulations and corporate sustainability disclosure requirements are increasing, leading companies (and investors) towards greener buildings. However, across 20 global markets, 65% of the total demand for low-carbon workspace will not be met with existing stocks or the current development pipeline by 2030.

This represents a significant opportunity for owners or developers of sustainable buildings – especially low carbon/zero net. buildings – to accelerate modernization and new developments to meet this unmet demand.

Making buildings more sustainable

The counterintuitive challenge that many companies will face, despite many global markets experiencing growing vacancy rates and overall low demand, is that the flight to quality in offices has created a strong concentration of demand at the top end of most markets, which are now becoming increasingly tight.

While the new wave of construction continues to peak in the Asia Pacific, where demand remains robust, many global Western markets (especially the U.S.) will see office deliveries slow significantly due to high costs and limited financing options, further limiting high-quality. options over the next two to three years.

The likely difficulties and potential crisis of capital for existing office assets in 2024, coupled with some accelerated wear and tear, will create additional risks for occupiers in the coming years. As a result, rents at the top end of the market will experience strong growth, with the potential for double-digit annual increases in well-located, dynamic, and sustainable high-quality spaces in the medium term.

This imbalance between supply and demand will create early-moving opportunities for both occupiers and investors.

Opportunity Amid Challenge

While the outlook for the coming year is complex, nuanced, and suggests uneven performance, the dominant theme in real estate markets will be one of opportunities amid challenges. The relative stability of the macroeconomic environment will provide investors and occupiers with opportunities to execute real estate strategies that were unrealistic to implement in 2022 and 2023.

Although we expect continued volatility, the post-pandemic extreme highs and lows in the sector will moderate, providing more predictable outcomes, supporting the activity of players throughout the real estate lifecycle. Those who can navigate through existing challenges and persistent uncertainty while making confident decisions and executing long-term strategic priorities will have a window to excel.

In 2024, we will witness the continued touchpoint of asynchronous real estate cycles in different geographic areas and sectors. In this context, some stronger market segments, with structural tailwinds, are likely to move ahead, while sectors that faced challenges in 2023 seek green shoots as 2024 progresses.

Geopolitics, domestic politics, and regulations will be crucial to closely monitor in 2024. There will be more national elections in the coming year worldwide than ever before.

Despite recent challenges and likely bumps on the road ahead, there are reasons for optimism as we turn the pages of our calendars towards 2024. The long-term prospects for the industry are also bright, driven by secular macro trends that have already been guiding the sector's growth.

The evolving future of work, the growth of real estate outsourcing, continuous capital flows, changing urbanization forms, accelerating technology, and commitment to sustainability will shape the real estate landscape for the rest of the decade.