A Real Economy publication

Real estate industry outlook

Feb 29, 2024

Real estate outlook key takeaways

Institutional investors seek quality and value amid a challenging commercial real estate market.

Distressed investments will be forced to transact in 2024, resetting market valuation.

Easing interest rates and other factors signal a potential housing market rebound.

Real estate trend #1: Commercial real estate faces new landscape

As the commercial real estate market continues to adjust to higher borrowing costs and compressed valuations in the face of significant maturing debt, location and asset class will play a major role for institutional investors seeking quality assets that will hold their value.

Hotel, retail, industrial and storage properties have been standouts for banks due to their solid fundamentals and less volatile underwriting. But as returns decline in core sectors, niche assets such as data centers, senior housing, storage and suburban single-family rentals will be attractive areas for private debt and opportunistic equity investment. 

Real estate trend #2: Investors navigate real estate industry disruption

Continued uncertainty in the real estate industry will be felt differently across geographies and investment sectors. The inability to move properties in distressed financial positions will be painful for investors not vertically integrated to manage investments or improve margins through operational efficiency.

It will remain critical to embrace digital transformation and invest in organizational infrastructure.  Sophistication among market participants will be essential, and investors will engage in strategic partnerships to mitigate risk and create a competitive advantage.  

Real estate trend #3: Cautiously optimistic U.S. housing market forecast

Disinflation and expectations of future rate cuts by the Federal Reserve have led to less uncertainty in the housing market. We expect mortgage rates to stabilize, which will help bring back buyer demand. Meanwhile, the lack of resale inventory and overall housing shortage will continue to push buyers into the new home market. Builders looking to capitalize on opportunities can take actionable steps to start preparing now.

Real estate trend #4: Growing investment opportunity in Canadian real estate

Fueled by a history of strong fundamentals, Canada’s consistently high performance among the G7 nations positions the country as a top-tier investment destination and a comparable substitute to U.S. investment. We expect Canadian real estate to continue garnering international attention as a lucrative and stable investment class.

Meanwhile, special circumstances have created an opening for foreign investors to enter the market. Challenges such as emerging real estate distress and a pension plan investment debate create unique openings for both domestic and foreign investors to strategically navigate and capitalize on the diverse landscape.

RSM contributors

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