U.S. Real Estate Strategic Outlook

In a nutshell

• From a macro perspective, real estate performance is a function of the economy and interest rates, in our view. Typically, the former carries more weight than the latter. However, in this post-COVID cycle, interest rates have dominated, weighing on returns despite healthy economic conditions.
• By extension, we believe that real estate will perform better in 2024, despite a potential recession, as interest rates plateau and possibly decline. Moreover, the effects of the prior interest-rate shock — higher cap rates and reduced construction — may pay dividends for years to come.
• We favor the industrial and residential sectors, which benefit from structural tailwinds, as well as grocery-anchored retail, which has overcome e-commerce challenges. We underweight the office sector pending a normalization of demand and more attractive valuations.
• Geographically, we generally favor markets in the Sun Belt and Mountain West, which will profit from outsized population and job growth for the foreseeable future, in our view.    
   

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