The eagerly anticipated pivot in monetary policy is finally upon us, with many global central banks now feeling more at ease with the outlook for inflation. Central bankers remain reticent to declare a total victory, however, with services price inflation – a better indicator of domestic price pressures than goods price inflation – generally still around 2-3 percentage points above target in most jurisdictions. Nonetheless, with labour markets slowing and little risk of another wage-price spiral, most central banks are comfortable with continuing a cautious programme of reducing base rates.
The interest-rate driven downturn in global real estate capital markets is looking as if it will soon give way to an interest-rate driven recovery.
Soft landing of the global economy most likely
A recovery in household incomes – underpinned by rising wages, solid employment levels and falling inflation – is providing a catalyst for growth in consumer spending, confidence, manufacturing levels, and wider business investment. Various indicators across pricing and activity metrics suggest that the bottom of the market is either already behind us, or very close to being so.
A soft landing remains the highest probability scenario, with some re-balancing in economic growth away from the US and towards Europe. The Chinese economy will continue to labour somewhat, underpinned by weak domestic demand, unless its government targets new stimulus at households. But the rest of Asia should benefit from a wider cyclical upturn, particularly through strong trade growth, with AI-related investment driving high demand for semiconductors from key producers in East Asia.
CRE turnover forecast to grow 27% to US$950bn in 2025
Continued economic growth (albeit modest) in combination with easing financial conditions, should continue to encourage risk-on investors: global equity markets have seen strong inflows of capital, with leading benchmark indices hitting record highs. Real estate investors should follow suit as we move into next year, driving a more sustained rebound in activity. Consequently, Savills is forecasting turnover of commercial real estate investment into the world’s 16 main markets, which together account for 90% of CRE activity, will reach US$747 billion by the end of 2024, 7% up on 2023. In 2025 this will increase a further 27% to US$950 billion. If our assumptions are correct, subsequent years should see additional rises, with turnover reaching approximately US$1,4 billion in 2027, making that one of the strongest performing years in the past decade.
Regional recovery variations
There are a few caveats here, however, as there will be some variations in the pace and strength of recovery between the US, EMEA and Asia Pacific. The recent escalation in conflict in the Middle East too, has led to some volatility in oil prices, although this has limited feed through to inflation, while geopolitical risk also remains elevated, and will potentially play on the minds of some real estate investors. Donald Trump’s decisive victory in the US presidential election removes some uncertainty, but also creates additional uncertainty over the future path of US domestic and foreign policy. Overall, however, the underlying risk environment is more balanced than it was 12 months ago, which should drive a return in volumes.
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