Hines’ Mid-Year Outlook: Value-Creation Opportunities in a Higher-for-Longer Environment

Report from Hines Research sees opportunities across regions in sectors including retail, living, and office through strategic capital expenditures, conversions, or rent growth

(HOUSTON) – At the halfway point of 2024, the global real estate market remains in the middle of a critical transition period with opportunity abound – if managers know where to look. That’s according to Hines Research’s latest report, 2024 Mid-Year Outlook: Walking Through the Threshold. Hines, a global real estate investment manager, notes in the report that key themes such as elevated interest rates, an easing pace of transaction volume declines and generally strong occupier fundamentals point to an opportunity for skilled managers and investors to take advantage of market dynamics through disciplined investing, driving alpha and growing net operating income despite the choppy capital markets.

“In this transitional period in real estate, we see near- and medium-term opportunities in select sectors and markets that nimble investors and managers can take advantage of,” said David Steinbach, Hines’ Global Chief Investment Officer. “A new cycle won’t announce itself, but we are starting to see some positive indicators in sectors such as retail and the living sector. We believe that now, perhaps more than ever, global managers and investors need to be able to access all parts of the capital stack in all regions to adapt to this environment.”

“A bottoming of transaction volumes, leveling off of inflation in many major economies, and even growth in some sectors are positive signs for real estate,” said Josh Scoville, Hines’ Global Head of Research. “Investors need to account for a higher-for-longer environment, which we believe will produce attractive entry points around the world.”

Value creation opportunities come into focus as key driver for investors

The Mid-Year Outlook points to a greed-fear index (GFI) for commercial real estate to make the case that, similar to trends seen in the capital markets, fear is high and suppresses transaction volume amid uncertainty around interest rates and valuations. However, the report states that historically in times when the GFI has registered higher fear and interest rates, value growth has been derived from growing net operating income at a significantly higher rate than through times of cap rate compression. This points to managers and investors needing to be focused on value creation at the property level through strategic capital expenditures, conversions, or rent growth, rather than relying simply on appreciation.

Still potential for a strong vintage

The report notes that fundamentals have continued to soften from their post-COVID rebound, and that transaction volume in Q1 2024 was lower than any quarter in 2023. However, book valuations continued to decline. Historically, private real estate funds launched while book valuations were still declining have produced exceptional returns compared to those launched while valuations were increasing and cap rates were rising1.

1Source: Hines Research

About Hines

Hines is a leading global real estate investment manager. We own and operate $93.2 billion of assets across property types and on behalf of a diverse group of institutional and private wealth clients. Every day, our 5,000 employees in 30 countries draw on our 65-year history to build the world forward by investing in, developing and managing some of the world’s best real estate. To learn more, visit www.hines.com and follow @Hines on social media.

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