Investing.com – UBS believes investors should gradually increase their exposure to global direct real estate, citing improving market conditions and attractive investment opportunities.
In a note to clients, UBS highlights the key trends and forecasts shaping the global real estate market.
The real estate sector has faced significant challenges, with transaction volumes down 44% in 2023 compared to an already weak 2022.
However, UBS expects a rebound in global transaction volumes to around $800 billion in 2024, up from $600 billion in 2023.
“Market size peaked at US$1.25 trillion in 2021; The global liquid, investable commercial real estate market is estimated at US$35 trillion.
However, the lack of forced sellers is said to have resulted in limited transaction volume.
UBS notes that “wealthy investors are now beginning to deploy capital,” emphasizing their strong position in acquiring assets.
Leasing activity in key sectors such as high-quality offices, retail and hotels remains weak but is showing signs of recovery, according to the bank.
Meanwhile, rental income is rising due to rent reversal and indexation, which UBS believes will play a crucial role in offsetting ongoing value corrections.
Looking ahead, the bank expects inflation and interest rates to peak, making real estate investments more attractive as widening yield spreads provide attractive opportunities. They expect rental income growth to increasingly offset value corrections, and do not expect credit to expand significantly due to refinancing pressures.
After a challenging 2023, which saw a total return loss of 4.1%, UBS expects global real estate to achieve a capital loss of 3.6% and an income return of 4.5% in 2024. By 2025, they expect returns to exceed the long-term average of 7.5%. Driven by a 9% rebound in transaction volume.
