Cohen & Steers predicts strong vintage returns in 2023 and 2024 from the current real estate market upheaval.
Real estate values are falling amid an economic slowdown, increasing borrowing costs, and recession fears. The slump offers an opportunity for investors who keep or increase their real estate holdings.
According to Cohen & Steers, which has $88 billion in assets, including $56 billion in real estate, stronger real estate returns follow recessions.
James Corl, head of private real estate at Cohen & Steers, told II that the strongest real estate profits follow economic and capital market disruptions. Once we reach the point of maximum market uncertainty, we can see interesting returns. But the setup will hurt.
According to "Recession and the Roadmap for Listed and Private Real Estate," REITs are down 17.4% through August. The decrease is typical of REITs during recessions. Private, quarterly-valued real estate hasn't caught up to public. True.
According to the survey, listed properties lead private real estate in recessionary selloff and recovery. Real-time price differences between REITs and private real estate might cause short-term dislocations. By understanding the leading and trailing tendencies of private and listed markets, real estate investors may be able to tactically allocate across the two asset classes at different times.
Private real estate offers investors long-term prospects. The report's authors predict private real estate values to decline 15% in a typical recession. A major recession, however unlikely, may drop prices by 25%.
Cohen & Steers says a few quarters of negative GDP growth indicate a "shallow recession." Corl predicts that investors who capitalize on the current real estate market upheaval will see good returns in two years. Because of the price reset, he thinks 2023 and 2024 will be strong.
Real estate is an inflation hedge. Self-storage and hotels can adjust rents swiftly to keep up with inflation. According to the research, these sectors are more cyclical and can buffer inflation.
Technology will also choose real estate winners and losers. Cell towers, healthcare facilities, and data centers are "rising secular winners," says Cohen & Steers. Sunbelt and surban real estate are also fresh options as people move to less crowded cities and suburbs.
Corl: "It's hard to generalize about the real estate market." Some investments are less obvious than others.
Zhang, Hannah. “The Best Real Estate Returns Come After Recessions | Institutional Investor.” Institutional Investor, 28 Sept. 2022, www.institutionalinvestor.com/article/b1zzgchpx627kz/The-Best-Real-Estate-Returns-Come-After-Recessions.