As of September 2024, inflation stands at 2.4% and the Federal Reserve has initiated a rate cut. This raises the question for commercial real estate investors: can they finally relax and start planning? According to David Rea, JLL’s Chief Economist for EMEA, the current environment is more stable than it has been in years.
While inflation is expected to remain within normal ranges, Rea emphasizes that it’s important to be prepared for any potential resurgence. He suggests stress-testing against possible increases in inflation as a wise precaution.
During an interview with Connect CRE , Rea also discussed other issues facing commercial real estate investors:
Short-Term Risks
Rea notes that there are multiple risks on the horizon that could have economic impacts such as geopolitical risks, election outcomes, climate risks and supply chain disruptions. He specifically mentions keeping an eye on shipping disruptions which could affect demand for logistics space – a sector that has seen significant investment post-pandemic. Any delays or disruptions in getting goods to market could also impact retail sales and profitability.
Economic Growth
Despite these short-term risks, Rea believes there is still potential for continued economic growth across most markets going forward into 2025-2026.”I think we can say growth will be stronger in those years compared to this year,” he adds.This positive outlook will also boost sentiment within the real estate sector.”It’s worth remembering that while the economy may be picking up now,” says Rea “the real estate cycle typically lags behind.”
Yields
Ree points out another factor contributing towards optimism among CRE investors: ongoing rent growth based on fundamentals coupled with prospects of yield compression.He predicts yields will begin compressing across most markets starting from 2025 onwards.This would not only lead to increased capital growth but would also attract more investor interest back into this sector after recent declines due to COVID-19 pandemic concerns.
In summary, Rea’s insights provide valuable information for commercial real estate investors to consider as they navigate the current market conditions and plan for the future.
