The early signs are positive. Investor sentiment has noticeably improved from the lows of last year, and this is feeding into activity, with the 11.3% quarter-on-quarter increase in global investment in commercial real estate in Q2 far greater than what the normal seasonal pattern would predict.

Digging into the data only serves to reinforce this view. Institutional investors are becoming more active, clawing back market share and supporting an increase in average deal size, as well as a greater volume of US$100 million+ transactions.

Meanwhile, indicators on pricing would suggest that the bottom is either already behind us, or very close to being behind us, as buyers and sellers better align on their expectations of fair value. And the US$30.3 billion in capital raised by real estate funds globally in Q2 represents the best quarter since Q2 2023, when Blackstone closed its latest opportunistic fund BREP X with over US$30 billion in commitments.

If the rates pivot is providing a catalyst for recovery, then the question now is how quick will they fall, and where will they end up (the ‘neutral’ interest rate). Both are very important for real estate investors, and policymakers will be discussing them at length when they convene in Jackson Hole this week, for the annual Economic Policy Symposium.

What central bankers say matters, particularly at turning points in the cycle. Just think of Mario Draghi’s promise to do “whatever it takes” to preserve the Euro in 2012, or the taper tantrum that followed remarks by then US Fed chair Ben Bernanke around scaling back quantitative easing. More recently, incumbent Fed chair Jerome Powell’s hawkish Jackson Hole speech in 2022 sent markets reeling, but has since been largely credited with helping to keep inflation expectations anchored.

Thankfully, nothing as extreme is expected this time around. But there will be plenty of soundbites for markets to ponder. We are likely to be reminded that this is not a normal cycle, and the path back to neutral may take several years. The global economy has shown a remarkable resilience to a series of major shocks over the last few years, but with this resilience comes the monotony of an uninspiring recovery, and ‘sticky’ inflation.

We must also consider the issue of credibility, without which, central bankers could not do their job (central bank independence is all about credibility). They are hurt by the perception of missing the boat when inflation was ‘transitory,’ which means they are ever more determined to stamp it out. As such, the message is likely to be that slow and steady wins the race.

Then there’s the question of where is the neutral interest rate. Here, it becomes a case of ‘higher forever’ as opposed to ‘higher-for-longer.’ The consensus is largely settled on the idea that rates will rebase higher, but there is plenty of debate, and they will continue to be plenty of debate, over how much higher. Jackson Hole will contribute to this conversation, and given real estate investors tend to invest over the medium to long term, there’s good reason to pay attention.

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Further information

Contact Oliver Salmon

Taking Stock 2024: A review of Global Real Estate Capital Markets