Global economy remained resilient in the last quarter of 2023, but conditions remain challenging, as shown in the latest analysis by JLL transmitted to infoCONSTRUCT editorial.

Tighter Monetary Conditions

Monetary conditions are still stricter than a year ago, labor markets have softened, and price levels are high, while there are risks due to conflicts and political uncertainty.

We expect continued volatility in 2024, although post-pandemic disruptions are moderating, with signs of strengthening occupier demand and renewed momentum in capital markets.

Economic growth will be below trends and historical rates in 2024, but as inflation further weakens and monetary policy rates are reduced, the second half of the year appears stronger and momentum should build from there until 2025.

After another transition year for many office occupiers, the last quarter of 2023 saw an improvement in activity as global office leasing volumes increased by 13% compared to the previous quarter.

This was still 19% below pre-pandemic averages but marked the strongest quarter since the second quarter of 2022. There were also positive signals in global logistics markets as leasing volumes in the United States increased by 17% after six consecutive quarters of decline, while net absorption in the Asia Pacific set a new annual record.

Real wage growth and urban destination travel have supported a selective consolidation of retail and hospitality performance. However, it is anticipated that interest rate cuts will shape the path to gradual recovery.

Investments

As markets advance in 2024, conditions continue to vary, but momentum is expected to develop as the year progresses. Debt markets remain liquid, but the cost of debt still affects dynamics across most markets globally.

Loan preparation programs and refinancing will continue to be in focus in a high-rate environment, and creditors maintain a sector-focused approach, with the strongest sentiment for logistics, housing, and selected alternative growth sectors. Market consensus indicates that rates have now peaked, and downward rate movements are already factored into markets for 2024.

Price discovery has continued in global markets, with visible yield adjustments observed over the past year. The asset class has seen an increasing number of bidders re-entering the market since late 2022, supporting a steady improvement in global bid intensity. The United States is most advanced in its pricing adjustment cycle, followed by Europe and then the Asia Pacific.

As markets improve, sector diversification will remain at the forefront to bring critical benefits and mitigate risks across and within sectors. While disadvantaged sectors such as offices have faced high pressures and scrutiny, the real estate asset class is currently undergoing a dynamic shift in investment strategies, favoring growth sectors in industrial, residential, and selected alternative sectors.

Market Diversification

Diversification will take different forms in markets worldwide, and even those less favored sectors still have a place in diversified global portfolios.

In the short term, investors are likely to adopt a cautious approach to navigate uncertainty, and implementation will be a hurdle, given the varying degrees of barriers to entry, competition, and crowding in those growth-oriented sectors.

While the path to market recovery is anticipated to be uneven and gradual across markets and sectors, the return of predictability will be crucial in stabilizing valuations and triggering liquidity, paving the way for a more balanced market environment. (Photo: Pexels)