Hines Half-Year Outlook: Value Creation Opportunities in a …

(HOUSTON) – As we move into mid-2024, the global real estate market is still in a critical transition phase where opportunities abound – if managers know where to look, according to the latest report from Hines Research. Half-year outlook 2024: Crossing the threshold. Hines, a global real estate investment manager, notes in the report that key themes such as elevated interest rates, a slowing decline in transaction volumes and generally strong tenant fundamentals point to an opportunity for experienced managers and investors to capitalize on market momentum through disciplined investing to increase alpha and grow net operating income despite turbulent capital markets.

“During this transition period in real estate, we see short- and medium-term opportunities in select sectors and markets that flexible investors and managers can take advantage of,” said David Steinbach, Hines’ Global Chief Investment Officer. “A new cycle is not on the horizon, but we are seeing initial positive indicators in sectors such as retail and residential. We believe that now, perhaps more than ever, global managers and investors need to have access to all parts of the capital stack in all regions to adapt to this environment.”

“The bottoming out of transaction volumes, flattening inflation in many major economies and even growth in some sectors are positive signs for the real estate market,” said Josh Scoville, Global Head of Research at Hines. “Investors need to prepare for an environment where prices rise over the longer term and we believe this will create attractive entry points globally.”

Value creation opportunities are becoming the main driver for investors

The Mid-Year Outlook references a Greed Fear Index (GFI) for commercial real estate to support that, similar to trends in capital markets, fear is high and depressing transaction volume due to uncertainty around interest rates and valuations. However, the report notes that during periods of higher GFI fear and higher interest rates, historically value appreciation has been driven by significantly higher growth in net operating income than in periods of capitalization rate appreciation. This suggests that managers and investors need to focus on creating value at the property level through strategic investments, remodels or rent increases rather than simply relying on value appreciation.

Still potential for a strong vintage

The report notes that fundamentals have continued to weaken following their post-COVID recovery, and that transaction volumes in the first quarter of 2024 were lower than any other quarter of 2023. However, book valuations continued to decline. Historically, private real estate funds launched when book valuations were still declining have delivered exceptional returns compared to those launched when valuations were rising and capitalization rates were increasing.¹.

¹Source: Hines Research

About Hines

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