Affluent Investors Keep Pouring Money Into This Asset Class. Here’s Why.
The Impact of the Pandemic on the Real Estate Market
The office sector has been hit hard during the pandemic as people continue to work from home in a challenging economic environment characterized by higher interest rates.
Commercial Real Estate Market in Europe and the US
The crisis has had a global impact.
Across Europe, office valuations have plummeted by over 30% in cities like London, Brussels, and Zurich since late 2019, according to real estate research group Green Street.
In the United States, the market has been devastated by record vacancy rates, with office visits dropping significantly.
Particularly in San Francisco, where tech companies have embraced remote work, office visits have decreased by 50% from March 2019 to this year, as reported by Placer.ai.
Even in New York, where Wall Street banks have been pressuring staff to return to the office, visits have declined by 17%.
Diverging Trends in the Commercial Real Estate Market
While the office sector struggles, other parts of the commercial real estate market have fared better.
In the US, commercial real estate prices have been supported by a lack of supply.
The industrial sector, including warehouses, has seen positive developments.
The e-commerce boom driven by online retailers like Amazon seeking more storage space has bolstered this sector.
Despite being affected by rising interest rates, the market is showing signs of recovery in major cities like London, according to Green Street.
Residential Real Estate Market and Investment Outlook
The residential sector is also on a path to recovery.
Home prices in the US have returned to record highs after bouncing back from recent lows, according to the S&P CoreLogic Case-Shiller index.
Strong investment returns and wage growth have supported healthy demand, leading to price increases.
Investors are optimistic about the real estate market growth in various regions, with rising valuations from Toronto to Singapore and Sydney, according to Knight Frank’s research.
Outlook and Confidence in the Real Estate Market
Despite challenges posed by the pandemic, geopolitical tensions, and higher interest rates, long-term investors, including the ultra-wealthy, remain attracted to real estate as a preferred asset class.
The confidence in the market’s upward trajectory is supported by expectations of lower interest rates and scarcity of supply.
Investors are betting on the real estate sector’s valuations to increase in the next five years due to these factors.
While uncertainties persist, the historical upward trend of real estate values provides a strong incentive for wealthy investors to maintain real estate investments.
As the real estate market relies on the real economy to drive demand for offices, factories, and homes, the overall outlook seems positive for major economies, contributing to the attractiveness of real estate as a long-term investment.
