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<ul class="summary-list"><li>The worst is behind the commercial real estate sector, according to Blackstone's Jon Gray.</li><li>The real estate vet thinks there's a huge opportunity for investors in the sector.</li></ul>The worst of the commercial real estate turmoil looks to be over, Blackstone president Jon Gray says.The private equity exec gave a cautiously optimistic outlook on the commercial property market at a recent event hosted by <a target="_blank" href="https://www.goldmansachs.com/insights/goldman-sachs-talks/blackstones-jon-gray-on-real-estate-rates-and-building-a-winning-company-culture">Goldman Sachs</a>. He says the tide may be turning, evident in a handful of signs flashing in the market similar to those that signaled a bottom in 2009, when the commercial real estate sector was beginning to rebound after the Great Financial Crisis."We said in January, publicly on earnings, that we thought commercial real estate was bottoming. And we've continued to believe that," Gray said. "We began to get those signals at the end of last year saying, look, the markets are recognizing inflation coming down. The Fed's starting to tilt toward a different area. As the cost of capital comes down in these sectors, we should go out there and get it."The state of the market mirrors 2009, when activity in the sector was just starting to pick up after the Great Financial Crisis, Gray said."And the problem for investors is they're often looking in the rearview mirror. So they're saying to themselves, 'Real estate, oh, I got all this troubled real estate. And I don't want to go back into that,'" he said. "But if you went back to 2009, the best investments in the cycle were then. You didn't get the all clear sign from everybody else till 2012."Blackstone has been busy "deploying capital" this year, he said, noting that the firm has been scooping up logistics assets in Europe like buildings involved in storing and transporting goods, as well as real estate in Asia."If you were an investor in real estate after the financial crisis, you would have made a lot of money. And my guess is, if you're an investor today, the same thing will happen," he added.

Commercial real estate is flashing signs that the worst of the distress is over, Blackstone president says

The residential market shows a positive outlook, with 51% of stakeholders predicting higher sales over the next six months. However, a notable 24% expect stability, while 25% predict a potential decrease, reflecting a balanced yet cautious sentiment, as per a recent <keyword id="19895043" type="General" weightage="20" keywordseo="Knight-Frank" source="keywords" meta.keywordsubtype="org" meta.entityname="Knight Frank" meta.hostid="261" meta.entityid="Knight Frank">Knight Frank</keyword> report. The outlook for residential launches is also positive, with 61% expecting an increase, suggesting continued demand. A more tempered view is held by 20% of respondents who expect stability, and 19% foresee a decrease in launches. The Indian <keyword id="20152263" type="General" weightage="20" keywordseo="real-estate-sector" source="keywords">real estate sector</keyword> continues to reflect a positive outlook for the near future, though with a more cautious approach. In terms of pricing, 63% of stakeholders expect a rise, but 36% anticipate stable prices, and a very small minority predict a decline. G Hari Babu, National President, National Real Estate Development Council (<keyword id="20429653" type="General" weightage="20" keywordseo="naredco" source="keywords">NAREDCO</keyword>), said, "The residential and office markets continue to show notable activity, signaling ongoing growth and opportunity. Developers and other key stakeholders, including banks and financial institutions, are maintaining a positive outlook." He added, "This suggests that while there may be short-term challenges, the sector is well-positioned to adapt and thrive. The continued optimism and activity in the market highlight the sector's ability to sustain its momentum and drive forward, amidst changing conditions." The <keyword id="22822547" type="General" weightage="20" keywordseo="office-leasing-market" source="keywords">office leasing market</keyword> shows signs of strong recovery, with 63% of respondents predicting an increase in leasing activity, driven by positive business sentiments and <keyword id="21313740" type="General" weightage="20" keywordseo="economic-revival" source="keywords">economic revival</keyword>. However, 24% expect stability, and 13% foresee a decline. New office supply also remains a point of interest, with 47% expecting an increase, while 29% anticipate stability, and 24% forecast a decrease. Furthermore, 67% of stakeholders expect office rents to rise, signaling confidence in the market's ongoing growth, even as 27% anticipate stable rents and 7% expect a decrease. The <keyword id="20635920" type="General" weightage="20" keywordseo="future-sentiment-score" source="keywords">Future Sentiment Score</keyword>, which measures stakeholders' outlook over the next six months, saw adjustments across various regions. The North Zone score slightly decreased from 65 in Q1 2024 to 63 in Q2 2024, though it remains firmly optimistic. The South Zone witnessed a more significant drop from 76 to 65, signaling a moderated outlook. In the East Zone, the score fell from 77 to 65, largely influenced by the discontinuation of the 2% stamp duty cut. The West Zone also saw moderation, with the score dipping from 73 to 66, though it too, remains optimistic. The overall Developer Future Sentiment score decreased from 72 to 61, reflecting a more guarded approach. Developers, while cautious, continue to remain optimistic due to strong sales since early 2023. On the other hand, the Non-Developer Future Sentiment core, which includes financial institutions and PE funds, also moderated from 73 to 68. This shift indicates stakeholders' careful consideration of macroeconomic concerns. Optimism in India's broader economic scenario remains strong, with 59% of respondents expecting an improvement, reflecting confidence in the country's economic resilience. However, 24% foresee stability, and 17% predict a decline, underscoring global economic uncertainties. Meanwhile, 51% of respondents anticipate increased funding availability for real estate investments, reflecting continued confidence in the financial sector's support for the real estate market. Shishir Baijal, Chairman and Managing Director of Knight Frank India Pvt Ltd, noted, "As we transition through 2024, a host of factors are playing out globally. The global economic landscape shows resilience despite ongoing challenges. Inflation rates are gradually aligning with central bank targets, enabling a more supportive monetary policy. India, benefiting from stable post-election conditions, remains a strong growth beacon." He added, "Domestic consumption is robust, supported by consumer loans, though there are some signs of growth moderation. Food inflationary pressures persist, but are converging overall towards price stability targets. With a projected GDP growth rate of 7.2% for FY 2025, India's outlook remains positive. An effective monetary policy by the Reserve Bank of India has helped sustain growth with price stability, positioning India as one of the fastest-growing large economies globally." The Current Sentiment score, which reflects stakeholders' view of the market compared to six months ago, moderated from a decadal high of 72 in Q1 2024 to 65 in Q2 2024. This suggests a more measured outlook as stakeholders navigate evolving global economic conditions. Despite the dip, the score remains indicative of optimism. Looking forward, the Future Sentiment index also adjusted from 73 in Q1 2024 to 65 in Q2 2024, signaling a positive yet more conservative outlook for the near term. While macroeconomic uncertainties may dampen enthusiasm, stakeholders continue to show confidence in the sector's resilience and adaptability.

Despite budget provisions, residential housing market will see sales growth, notes recent report by Knight Frank

<ul class="summary-list"><li>Goldman Sachs and JPMorgan Asset Management are becoming a bit less bullish.</li><li>Although the US economic outlook is strong, returns may have been pulled forward.</li></ul>A pair of Wall Street juggernauts are getting slightly more skeptical about stocks and bonds, but a compelling investment opportunity may be hiding in plain sight.<div type="image" title="GS 10-year projection" height="1088" width="1508" msid="114505224" hostid="261" sizebytes="75402"></div>Goldman Sachs stole headlines recently by forecasting that <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-sp500-future-returns-decade-forecast-goldman-sachs-2024-10">US equities will only rise 3% a year in the next decade</a>, down from an average annual gain of 13% in the prior 10 years. The firm's rationale is based on a more challenging backdrop characterized by lofty valuations, an unusually high concentration in the market's biggest stocks, increased recession risk, lower profits, and elevated interest rates.<div type="image" title="GS 10-year projection baseline" height="742" width="1010" msid="114505227" hostid="261" sizebytes="35320"></div>Top minds at JPMorgan Asset Management (JPMAM) agree that stocks might not post the returns that investors have come to expect, though they're not nearly as pessimistic.The firm, which manages $3.5 trillion in assets, expects US large-cap equities to appreciate by 6.7% a year in the next 10 to 15 years, according to its yearly long-term capital market assumptions report released on October 21. For reference, JPMAM thinks global stocks will rise between 7.2% and 8.1% a year in that same span.A mid-single-digit annual gain for US large caps is nothing to sneeze at, though it would be down substantially from <a target="_blank" href="https://www.businessinsider.com/how-to-invest-economy-growth-outlook-recession-risk-inflation-jpmorgan-2022-11">7.9% two years ago</a> and <a target="_blank" href="https://www.businessinsider.com/how-to-invest-stocks-bonds-real-estate-outlook-strategy-jpmorgan-2023-10">7% last year</a>.There's a simple explanation for that marginally more tepid outlook: US stocks have been on a tear. And while <a target="_blank" href="https://www.businessinsider.com/stock-market-outlook-prediction-2025-how-to-invest-rally-trader-2024-10">some bulls are emboldened</a> by the S&amp;P 500's excellent track record, JPMAM strategists worry that the market has pulled forward future gains."Near the bottom of all these pages, we put a little statement saying, "Past performance is not indicative of future returns.' That's actually not true," said David Kelly, JPMAM's chief global market strategist, at a press conference about the report. "Past great performance is indicative of a more difficult environment going forward."The S&amp;P 500 is on pace to rise by at least 10% <a target="_blank" href="https://www.macrotrends.net/2526/sp-500-historical-annual-returns">for the fifth time since 2018</a> and the 11th time since the financial crisis, including what's been a 22.7% gain in 2024. That strength, combined with already-rich valuations, led JPMAM to cut its long-term projection for US large caps.<div type="image" title="JPMAM valuations" height="926" width="1038" msid="114505230" hostid="261" sizebytes="32120"></div>However, Kelly said the downward shift was gradual since the economic growth outlook is promising. The firm is calling for US real GDP of 2% in the long term, which is the highest mark since the pandemic, along with 2.4% inflation, which is down for the third consecutive year."The very good news is that we think that the foundations for the US economy and the global economy look better than they did a year ago," Kelly said. "We got through some of our more significant worries on inflation; economic growth looks pretty solid."<div type="image" title="JPMAM US GDP forecast" height="828" width="1032" msid="114505215" hostid="261" sizebytes="15222"></div><h2 id="ee7765b8-415d-46ac-862a-90df145c611f">As the 60-40 portfolio loses steam, real estate can take the baton</h2>Lower stock returns are expected to drag down the traditional 60-40 stock-bond portfolio, which JPMAM now says should fetch 6.4% a year for the next decade or so.That forecast is down from 7% last year and 7.2% heading into 2023, though it's higher than the <a target="_blank" href="https://www.businessinsider.com/alternative-investing-strategy-60-40-portfolio-bitcoin-outlook-inflation-jpmorgan-2021-11">4.3% mark in late 2021</a>, where US large caps were only expected to climb 4.1% a year in the long term after an outstanding rebound from the early pandemic lows.Bonds, which make up the second half of that calculus, have a solid but unremarkable outlook.US bonds broadly are expected to return 4.6% in the long term — down from 5.1% last year and the same as two years ago — while the US 10-year Treasury note is projected to fetch 4.2%, versus 4.6% last year and 4% two years ago. Meanwhile, high-yield bonds should deliver a 6.1% gain in the long term, compared to 6.5% last year and 6.8% two years ago.After accounting for inflation, JPMAM expects the standard 60-40 portfolio to return less than 5% in the long term, and the same is true of large-cap stocks and bonds. While such gains may be satisfactory for some, it would take over 16 years for an investor to double their money.Those looking for a more compelling investment opportunity should consider real estate, according to JPMAM. Unlike stocks and bonds, the firm's projected returns for that asset class are steadily rising, from 5.7% two years ago to 7.5% in late 2023 to 8.1% this year.US core real estate is projected to yield close to 6%, up from just over 4% a few years ago and well above the 10-year's yield of 4.2%. Real estate isn't cheap based on <a target="_blank" href="https://www.investopedia.com/terms/c/capitalizationrate.asp">capitalization rates</a>, which measure how much money a property generates relative to its market value, but JPMAM believes the asset class is an exceptional value relative to other yield-generating investments.<div type="image" title="Real estate vs 10-year yield" height="924" width="1032" msid="114505221" hostid="261" sizebytes="34048"></div>"If you were to look at this on a spread basis, the cap-rates spread would tell you that real estate looks a little bit expensive," said David Lebovitz, a global market strategist for JPMAM, at the conference. "But if you look at the all-in yield and think of that as your valuation and your starting point, we're looking at a generational opportunity."Monica Issar, JPMorgan Private Bank's global head of multi-asset and portfolio solutions, echoed that sentiment."This is absolutely the largest generational opportunity to invest in real estate in a long time," Issar said at the conference.Commercial real estate looks especially compelling, Issar said. Unlike residential real estate, which has held up well in recent years — as evidenced by <a target="_blank" href="https://fred.stlouisfed.org/series/MSPUS">remarkably resilient home prices</a> despite <a target="_blank" href="https://www.freddiemac.com/pmms">still-elevated mortgage rates</a> — office buildings have struggled to regain their value since the pandemic ushered in a new era of remote work for millions of Americans.As companies reduced their physical presence or eschewed offices altogether, demand for commercial spaces has taken a massive hit. However, Issar thinks that risk is reflected in prices."All we've been reading about and all we've been seeing is price declines and discussions about empty buildings," Issar said. "This is a time for investors to step in, move into attractive pricing, move into asset classes like non-core real estate."Investors can bet on a commercial real estate rebound by working with <a target="_blank" href="https://am.jpmorgan.com/us/en/asset-management/institutional/investment-strategies/alternatives/real-estate/">JPMAM's team</a>, or on their own through publicly traded real estate investment trusts (REITs). JPMAM didn't outline any specific investments to make, but Issar threw out a few ideas to help investors brainstorm."Think of multifamily housing; think of student housing around campuses; think of cell towers and data centers," Issar said. "That is the modernization of the new direct real estate that is going to be really attractive for investors in the future."

'Generational opportunity': Invest in real estate as stock and bond returns shrink, according to $3.5 trillion JPMorgan Asset Management

Corporate <keyword id="19895063" type="General" weightage="20" keywordseo="india" source="keywords">India</keyword> reported the strongest <keyword id="6357342" type="General" weightage="100" keywordseo="hiring" source="Orion">hiring</keyword> sentiments globally for the next three months, with 37 per cent of employers planning to increase their staff strength as businesses are bullish about the country's economic position, a survey said on Tuesday. According to the ManpowerGroup <keyword id="6355127" type="General" weightage="20" keywordseo="employment" source="Orion">Employment</keyword> <keyword id="20206852" type="General" weightage="20" keywordseo="outlook" source="keywords">Outlook</keyword> Survey Q4, 2024, of nearly 3,150 employers across sectors and regions, the <keyword id="20449001" type="General" weightage="20" keywordseo="net-employment-outlook" source="keywords">Net Employment Outlook</keyword> in India is the strongest worldwide at 37 per cent, followed by Costa Rica (36 per cent) and the US (34 per cent) in the second and third place respectively. The Net Employment Outlook (NEO) is calculated by subtracting the percentage of employers who anticipate reductions to staffing levels from those who plan to hire. The India employment outlook for Q4 (October-December) stood at 37 per cent, up 7 per cent from Q3 2024, and unchanged when compared with the same time last year. "The hiring intention of employers signifies the positive outlook in the country's economic position that has been reinforced by exports as a result of multilateral foreign policies and large-scale infrastructure development. Coupled with this, is our demographic advantage that is expected to boost our competitiveness in the global market," said <keyword id="20933727" type="General" weightage="20" keywordseo="sandeep-gulati" source="keywords">Sandeep Gulati</keyword>, Managing Director, <keyword id="20841782" type="General" weightage="20" keywordseo="manpowergroup-india" source="keywords">ManpowerGroup India</keyword> and Middle East. According to the survey, employers across all sectors report net positive hiring intentions with the financial and real estate industry having the strongest outlook of 47 per cent, followed by information technology (46 per cent), industrials and materials (36 per cent) and consumer goods and services (35 per cent). The least optimistic prospects were witnessed in the communication services (28 per cent). The survey further noted that the Northern region of India continues to dominate the job demand with an outlook of 41 per cent followed by the West (39 per cent). Gulati further noted that "India is expected to focus on its high domestic consumption, economy-booster government schemes, increasing demand for outsourcing services and manufacturing boom. "With increased focus on skill development to meet market demands, India may be able to reduce unemployment and fasten the pace of economic development by creating a more capable and adaptable workforce that meets the needs of the emerging industries." Hiring managers across the Asia-Pacific countries anticipate the second strongest regional Outlook at 27 per cent, an increase of 4 per cent from the previous quarter but decreased when compared to the same time last year. India, Singapore, and China continue to report the strongest employment outlooks in the region. The most cautious employment outlooks were reported by employers in Hong Kong (8 per cent). Survey responses were collected from July 1-31, 2024, and 40,340 employers across 42 countries were asked about their fourth-quarter hiring intentions.

Indian employers most bullish globally on Oct-Dec quarter hiring: survey

<ul class="summary-list"><li>Capital Economics says an "unavoidable structural decline" in China's property sector has just begun.</li><li>Property sales and starts have collapsed, and construction could fall by half in the years ahead.</li></ul>Several years in, <a href="https://www.businessinsider.com/china-economy-us-trade-markets-investors-policy-beijing-finance-outlook-2024-1">China's prolonged real-estate slump</a> has been well documented, but the landscape may be about to deteriorate further as construction enters a <a href="https://www.businessinsider.com/china-economy-beijing-lehman-moment-policy-deflation-economy-markets-property-2023-8">deeper correction</a>, Capital Economics said in a note Wednesday.Property sales and starts have tumbled, but Beijing has been able to support construction activity by ramping up investment in the sector and pressuring developers to complete their work."A variety of approaches suggest that a sustainable level of residential construction activity is about half of what's underway today, given China's demographics and its need to replace aging housing stock," strategists wrote, adding that "property construction still has a long way to fall."Since peaking in 2022, floor area under construction has slipped by a mere 3%, as shown in the chart below.<div type="image" title="China residential real estate construction activity" height="598" width="939" msid="108275463" hostid="261"></div>Sizable infrastructure support has prevented construction from falling as much as anticipated. Investment in infrastructure has expanded at a "reasonably rapid rate," the Capital Economics team said. It's plausible, in their view, that construction output would have softened further without it."The drag from the unavoidable structural decline in China's property sector has only just begun," the strategists said.Meanwhile, Beijing's pressure on builders seems to have worked so far. Last year marked the first year since 1997 that reported residential property completions outpaced project starts.As Capital Economics highlighted, real-estate construction remains an opaque measurement in China. Much of the country's property data omits details that could help paint a clearer picture or explain the apparent lack of weakness in new building.<h2>Construction's impact on economic growth</h2>Real estate contributed roughly 1.5 percentage points to China's annual economic growth before the contraction began, the research firm said. But that weakness has so far come without a meaningful drop in construction.When similar steep drop-offs have occurred in other countries, they've usually taken place over three or four years. In Capital Economics' view, Beijing will drag it out so that it doesn't fully materialize until 2030.That ultimately could crimp China's GDP by about 1% across the rest of the decade compared with an outlook without as dramatic a construction slump.The strategists said that despite China's efforts in sector investment and developer pressure, it's unlikely that Beijing could offset the underlying weakness in property demand for much longer. Ultimately, China is attempting to use cyclical tools to solve structural issues.Much of the infrastructure investments are financed by local governments that face diminishing returns and other financial headwinds. Capital Economics said demographic challenges including a falling population and stalling urbanization suggest weaker property demand in the years ahead."In sum, while property sales and project starts have collapsed, and many developers have been driven into bankruptcy, the full impact of China's property crisis on real economic activity has not yet been felt," Capital Economics strategists said.

China's real-estate slump is about to get worse

<ul class="summary-list"><li>Officials in China are pushing banks to rush loans for property developers, Reuters reported. </li><li>The real estate sector is in a downturn, and many lenders are strapped for cash.</li></ul>Officials in Beijing are pushing Chinese banks to rush loan approvals for property developers stuck in a <a href="https://www.businessinsider.com/china-economy-deflation-markets-property-real-estate-housing-beijing-2023-8">prolonged downturn</a>, according to <a href="https://www.reuters.com/world/china/china-pushes-banks-speed-approvals-new-loans-private-developers-say-sources-2024-03-25/" target="_blank" rel="noopener">Reuters</a>. China's real estate woes over the last year have spurred concerns of an <a href="https://www.businessinsider.com/china-economy-beijing-lehman-moment-policy-deflation-economy-markets-property-2023-8">impending "Lehman moment"</a> amid slumping property values, declining homebuyer sentiment, and a backlog of unfinished construction projects. In February, home prices declined for the eighth consecutive month.Reuters says authorities are testing a "whitelist" mechanism to prop up the sector's cash-strapped developers in a bid to <a href="https://www.businessinsider.com/china-economy-us-trade-markets-investors-policy-beijing-finance-outlook-2024-1">boost sentiment and confidence</a>.The program, which Reuters said Beijing initiated last week, covers state-backed construction and private developers that require new financing of 1.5 trillion yuan. It allows city governments to recommend residential property development to banks for financial support. At the same time though, rushing loan approvals could result in diminished loan quality, the report notes. Authorities see faster loan approval for residential construction as a way to get real estate back on track.Many Chinese banks have avoided increasing credit exposure to the country's ailing property market. That's limited hopes for a real estate rebound and in turn capped economic growth for several years, given how much the economy depends on the sector.The banks themselves are also in a slump. Weak consumer sentiment and growth outlooks have tempered loan demand and business. Among China's top five state-backed lenders, three will report smaller net income for the full-year 2023, and the other two will also see lower profits.

China officials are reportedly pushing banks to rush loans to cash-strapped real estate developers

<ul><li>About 43% of the real estate developers said they expect stable demand in 2023, as per a survey by <keyword id="6393312" type="General" weightage="100" keywordseo="credai" source="Orion">Credai</keyword>, Colliers and Liases Foras. </li><li>The most optimistic of developers, at 31%, believe that demand will increase by up to 25%. </li><li>About 87% of the developers are willing to launch a new project in 2023. </li><li>Developers are keen on branded residences and plotted developments. </li></ul>A majority of real estate developers in <keyword id="3658" type="General" weightage="50" keywordseo="india" source="Orion">India</keyword> – at 74% – expect demand to either increase or remain stable in 2023, as per a survey conducted jointly by Credai, Colliers and Liases Foras. While 43% of those surveyed expect stable demand, the most optimistic of them — at 31%, believe that demand will increase by up to 25%. “During 2022, developers across the spectrum saw increased enquiries led by a continued inclination towards home ownership since the pandemic. The survey reveals that developers remain optimistic about the market,” said Harsh Vardhan Patodia, president of Credai National. Half of the developers also said that recession will have a moderate impact on their business. “Homebuyers remain enthused about purchasing homes, despite rising interest rates. Developers too are focusing on launching projects that are aligned as per the needs of the homebuyers and are also formulating strategies to complete their pending projects and bring in demand-led supply,” said Ramesh Nair, CEO India, Colliers. About 58% of the developers also expect housing prices to increase further, in light of volatile input costs, economic uncertainties and sustained inflation rates. “We have also seen a marginal increase in property prices (in 2022). The market is likely to maintain the momentum that the sentiment survey re-affirms,” said Pankaj Kapoor, managing director, Liases Foras. About 43% of those who participated in the survey said that their input costs have gone up by 10-20% in 2022, compared with the year before. An earlier report by Colliers too said that the cost of key construction materials jumped about 32% in three years. Plotted developments &amp; branded homes Thanks to the positive sentiment, most developers in the survey are formulating strategies to complete their pending projects and bring in demand-led supply. Around 87% of the developers also said that they are willing to launch new residential projects. Also, 51% of the developers who expressed a positive demand outlook are willing to explore new business models like plotted developments and branded residences. Higher disposable incomes and increased need for amenities and open spaces have pushed up demand for self-contained residential complexes, the survey said. Branded residences are the clear favourites among developers as about 31% of the developers are willing to explore them. And, 19% of them are willing to explore plotted developments. “Plotted developments are also becoming popular, especially in Tier II cities due to lower land rates and the flexibility they offer to homebuyers,” the report said. SEE ALSO <a href="https://www.businessinsider.in/finance/news/pe-inflows-into-mumbai-realty-drop-sharply-ncr-emerges-as-top-favourite-in-9mfy23-anarock/articleshow/96885518.cms">PE inflows into Mumbai realty drop sharply, NCR emerges as top favourite in 9MFY23: Anarock</a> <a href="https://www.businessinsider.in/finance/news/digital-inequality-debt-cost-of-living-crises-among-top-5-risks-for-india-in-2-years-wef/articleshow/96929194.cms">Digital inequality, debt, cost of living crises among top 5 risks for India in 2 years: WEF</a>

Realty developers positive on demand, keen on branded homes & plotted developments: Credai survey

<ul><li>In 2023, amidst ongoing layoffs by tech companies, the sector’s demand for flex spaces is set to rise as they offer flexible lease terms. </li><li>63% of the occupiers in India are currently embracing hybrid mode and are likely to continue with hybrid working arrangements. </li><li>Listed developers target to increase their green portfolio by about 25% by 2025-2030. </li></ul>Flex spaces, <keyword id="16692378" type="General" weightage="20" keywordseo="hybrid-working-spaces" source="Orion">hybrid working spaces</keyword> and greening real estate are likely to be the underlying themes for the office sector this year, according to the ‘<keyword id="8076857" type="General" weightage="20" keywordseo="real-estate-outlook" source="Orion">Real Estate Outlook</keyword> for 2023’ report by real estate consultancy Colliers. The year 2023 has started on a cautionary note with pressures from a looming global recession and slowdown in certain sectors, the report said. However, the real estate sector performed well during 2022, despite the economic concerns, witnessing higher traction. "The real estate sector saw strong recovery gains and impressive growth in 2022, signaling the significance of <keyword id="758423" type="General" weightage="20" keywordseo="office-spaces" source="Orion">office spaces</keyword> in a post Covid-19 world. As we look at 2023, the global economy is seeing signs of recession which could lead to a relative slowdown. However, the APAC (Asia-Pacific) region appears less volatile, with several pockets of opportunity on the horizon. We foresee some stability in the market by mid-year in the office markets. Hybrid working, flexibility and greening real estate will be the key buzz words in the sector,” said Ramesh Nair, chief executive officer, India &amp; managing director, market development, Asia, Colliers. Higher demand for flex space by tech companies At the close of 2022, office leasing in India crossed 50 million sq ft, of which 14% corresponded to leasing by flex players – the highest in any year. In 2023, amidst a looming global recession and ongoing layoffs by tech companies, they are likely to increase their demand for flex spaces as they offer flexible lease terms and aid cost control. Hybrid models to evolve While 2022 was the year when the hybrid working model picked up pace, the year 2023 would see occupiers creating policies to further define hybrid work. As per a survey done by Colliers on hybrid working in September 2022, 63% of the occupiers in India are currently embracing hybrid mode and are likely to continue with hybrid working arrangements with employees coming to the office for 2-3 days a week. More green properties to enter the market According to Colliers, the stock of green-certified buildings has witnessed a five-fold increase in 2022 compared to 2010. As a part of their short-term goals on ESG (environmental, social and governance) criteria, listed developers target to increase their green portfolio by about 25% by 2025-2030 and increase the use of renewable sources of energy. The report states that about 60 million sq ft of additional green Grade A stock has received pre-certifications or are under discussion for green certification, and are likely to come up in the office markets of Hyderabad, Pune and Delhi NCR. Moreover, green financing is likely to drive major investment decisions as domestic and offshore investors seek quality Grade A projects that are ESG compliant.

Flex, hybrid and green to be key underlying themes in India’s office market in 2023: Colliers

<ul class="summary-list"><li>Problems for the US commercial real estate sector seem to be getting worse — and spreading.</li><li>Steeper interest payments, tighter bank lending, and declining asset values have slammed the sector.</li></ul>The tremors rattling US commercial real estate are spreading to other countries and sectors, and threaten to escalate into a financial earthquake as refinancing deadlines loom.Some investors aren't worried about falling through the cracks, though. They think the climate of fear and confusion is serving up prime properties at bargain prices.<h2>What's going on?</h2>There are growing signs that commercial real estate is in serious trouble.Barry Sternlicht, a billionaire real estate investor and <a target="_blank" href="https://www.businessinsider.com/office-crash-property-values-commercial-real-estate-barry-sternlicht-economy-2024-1">Starwood Capital's CEO</a>, recently predicted $1 trillion of losses on office properties alone.More than $900 billion, or 20%-plus of the total debt owed on US commercial and multi-family real estate, will mature this year, <a target="_blank" href="https://www.bloomberg.com/news/articles/2024-02-12/commercial-property-loans-coming-due-in-us-jump-to-929-billion?srnd=premium&amp;embedded-checkout=true">Bloomberg reported</a> this week. Borrowers may have no choice but to refinance at much higher interest rates, or sell their properties at a big discount.Property jitters are being felt in Europe too. The value of bonds for Germany's Pfandbriefbank tumbled this month as investors fretted about its exposure to the embattled industry.Moreover, the European Central Bank has threatened to impose steeper capital requirements on lenders unless they take commercial real estate risks seriously, <a target="_blank" href="https://www.bloomberg.com/news/articles/2024-02-09/ecb-warns-banks-to-grasp-real-estate-risks-or-face-capital-hits?embedded-checkout=true ">sources told Bloomberg</a>.At the same time, some Chinese investors are rushing to sell foreign real estate at discounts of 45% or more, in an effort to free up cash as they weather a worsening property crisis at home.Prospective losses, refinancing woes, international contagion, and panic selling combine to create a bleak outlook for the commercial property sector.<h2>Why's everyone so worried?</h2>Fears were reignited this month after <a target="_blank" href="https://www.businessinsider.com/nycb-regional-bank-fears-commercial-real-estate-turmoil-fears-2024-2">New York Community Bancorp</a> abruptly cut its dividend, set aside some $500 million to cover bad debts, and revealed a surprise quarterly loss that it blamed on just two troubled loans.Investors promptly sent NYCB stock down 60% in five days, and it's still trading at two-decade lows. The lender's scramble to clean up its finances triggered bad memories of last spring's <a target="_blank" href="https://www.businessinsider.com/a-banking-crisis-is-unfolding-worldwide-how-bad-is-it-2023-3">regional-banking fiasco</a> that saw Silicon Valley Bank and two other lenders hit by tidal waves of deposit withdrawals, then seized by the federal government before they collapsed entirely.The catalyst for both the banking and commercial real estate drama is deceptively dry: rising interest rates.But the simple act of making borrowing more expensive can discourage spending, hiring, and investing; drag down the prices of risky assets like stocks by boosting yields from bonds and savings accounts; turn the screw on debt-reliant industries; and slow the <a target="_blank" href="https://www.businessinsider.com/recession-outlook-financial-crisis-economy-federal-reserve-yield-curve-rosenberg-2024-2">economy into recession</a>.In response to surging inflation, the Federal Reserve hiked its benchmark interest rate from virtually zero in early 2022 to more than 5% by the following summer. It <a target="_blank" href="https://www.businessinsider.com/federal-reserve-first-interest-rate-cuts-summer-raphael-bostic-inflation-2024-2">hasn't lowered</a> it since, and other countries' central banks have followed its lead.The combination of higher borrowing costs and the shift to remote working has sapped demand for offices and other commercial property, driving down asset values.Some regional lenders such as <a target="_blank" href="https://www.businessinsider.com/silicon-valley-bank-failure-what-happened-bank-run-explained-2023-3">Silicon Valley Bank</a> weren't sufficiently hedged against rate hikes last year, and saw their portfolios of bonds and mortgages slump in value as a result.Stung by those paper losses, fearful of a surge in late payments and loan defaults, and wary of further bank runs, lenders have pulled back from lending for commercial property.The upshot is the sector not only much higher interest payments on its massive debts, but also a credit crunch and declining asset values. Small businesses are also <a target="_blank" href="https://www.businessinsider.com/oleary-regional-banks-commercial-real-estate-small-business-rates-lending-2023-9">feeling the squeeze</a> from steeper borrowing costs and stricter lending standards.On the bright side, <a target="_blank" href="https://www.businessinsider.com/personal-finance/what-is-inflation">inflation</a> has dropped from a 40-year high of 9.1% in the summer of 2022 to below 4% in recent months, leading the Fed to pencil in a number of rate cuts this year.But many property loans are falling due in the next year or two, raising the question of whether rates will come down fast enough to prevent a disaster.Indeed, some $2.2 trillion in commercial mortgages are set to mature by the end of 2027, data firm Trepp estimates."At some point, that avalanche is going to hit," the firm's chief product officer told The Wall Street Journal.<h2>Wait, some buyers are wading into this market?</h2>Yes they are. <a target="_blank" href="https://www.businessinsider.com/category/warren-buffett">Warren Buffett</a> famously preaches "be greedy when others are fearful" — and some brave souls are taking that advice to heart.Ian Jacobs, a former assistant to the Berkshire Hathaway CEO, plans to buy 3 million square feet of office space in San Francisco and pay about 70% below building costs, <a target="_blank" href="https://www.wsj.com/real-estate/commercial/a-buffett-protege-makes-an-offbeat-bet-buy-san-francisco-real-estate-15dde4ba">The Journal reported</a> this week.He's already lined up $750 million from investors, despite warning them it could take a decade for prices to bounce back, the report said.Jacobs is a member of the Reichmann family, meaning bargain hunting is pretty much a family business. His relatives built a real estate empire by scooping up cheap properties in New York City when it nearly went bankrupt in the 1970s.<div type="image" title="Manhattan skyline in the 1970s" height="2303" width="3418" msid="107753983" hostid="261" sizebytes="378074"></div>Other examples include Ares Management and RXR, two investment firms that are purchasing interests in 3 million square feet of office space, sources told The Journal.In December the Aon Center in downtown Los Angeles sold for about $148 million — considerably less than the $268 million it fetched in 2014, <a target="_blank" href="https://www.bloomberg.com/news/articles/2023-12-23/la-s-third-tallest-tower-sells-for-45-below-2014-price">Bloomberg reported</a>.Moreover, "Undercover Billionaire" star and real estate tycoon <a target="_blank" href="https://www.businessinsider.com/cardone-real-estate-market-outlook-office-apartments-house-prices-mortgages-2023-12">Grant Cardone</a> has hailed the ongoing correction as a rare chance for everyday people to buy "trophy real estate" from institutional owners.Of course, commercial property players have a vested interest in trumpeting the industry's troubles as a buying opportunity, given that could revive investor interest and reverse the plunge in their property values.Yet it's likely that some high-quality assets will be caught up in the selloff. Those who buy them when fear is spreading far and wide and indebted developers are in a race against time will ultimately be rewarded for their courage.

Commercial real estate is in big trouble — and the problems may have major financial fallout

<ul class="summary-list"><li>Commercial real estate investment in the US last year dropped 52% to the lowest level since 2012.</li><li>New York led with $33 billion, trailed by Los Angeles with $30 billion in investment. </li></ul>The US commercial real estate market saw a steep drop in investment last year, with capital flows into the market plummeting by more than 50% to the lowest level since 2012. For the fourth quarter, investments in commercial properties plunged by 44% on an annualized basis to $81 billion. That brought the full-year investment total to $348 billion, a 52% decline from 2022,<a href="https://www.cbre.com/insights/figures/q4-2023-us-capital-markets-figures" target="_blank" rel="noopener"> according to CBRE</a>. The figure is only slightly above the <a href="https://www.statista.com/statistics/245103/real-estate-capital-flows/" target="_blank" rel="noopener">$340 billion</a> recorded in 2012.CBRE noted a 91% year-over-year drop in direct real estate company investments to $1.4 billion in Q4, citing increased financing costs. Individual property sales also fell by 36% to $68 billion, while bundled portfolio sales decreased by 45% to $12 billion.New York took the lead with $33 billion in investment, followed by Los Angeles at $30 billion. By property type, multifamily and industrial assets notched investment volumes of $26 billion and $19 billion, respectively. The real laggard by investment volume was the US office sector, which only saw $14 billion in investment in the fourth quarter, a decline of 33% from the same period in 2022. The persistent <a href="https://www.businessinsider.com/commercial-real-estate-crash-outlook-office-market-values-halfway-decline-2023-12">work-from-home</a> dynamics have boosted office vacancy rates to <a href="https://www.businessinsider.com/office-crash-property-values-commercial-real-estate-barry-sternlicht-economy-2024-1">a 30 -year high of 18.6%</a>. Office values have seen the steepest decline among property types, with CBRE noting that offices saw a 16% year-over-year price drop.Billionaire Starwood Capital CEO Barry Sternlicht <a href="https://www.businessinsider.com/office-crash-property-values-commercial-real-estate-barry-sternlicht-economy-2024-1">warned last month</a> that the office meltdown will result in $1 trillion of losses and other real estate experts have said the market could take years to recover its pre-pandemic value. Capital Economics researchers last month predicted that this year would see the completion of a 20% peak-to-tough decline in office values. The dimming outlook for commercial real estate —offices in particular — is linked to the tighter financing conditions that many commercial landlords now face. As billions come due on commercial properties each year, owners must grapple with refinancing existing debt at higher interest rates. While rates are expected to come down in 2024, office landlords will still struggle with elevated vacancy rates. One solution has been to convert offices into residential properties, though not all buildings are suited for it. Since 2021, <a href="https://www.businessinsider.com/housing-market-outlook-commerical-residential-offices-resiclub-real-estate-mortgage-2024-2#:~:text=Since%202021%2C%20the%20number%20of,That%20now%20stands%20at%2055%2C300.">the amount of office-to-residential conversions</a> has soared 357%.

Commercial real estate investment plummeted to the lowest level since 2012 last year

<ul><li>Data centres, <keyword id="6713616" type="General" weightage="20" keywordseo="co-living-spaces" source="Orion">co-living spaces</keyword> along with other alternate real estate assets are seeing steady institutional inflows for four years, says Colliers.</li><li>India’s economic outlook is sturdy and the business case for alternative investments will only strengthen, it adds.</li><li>Data centres see almost half of all the institutional inflows into alternate assets. </li></ul>Indian alternate real estate assets like co-living spaces, data centres and more have been attracting domestic as well as foreign capital, along with conventional sectors like residential and office spaces. As of the first half of 2023, as much as $158 million was investment into such assets, says a report by Colliers. The breakout year for investments into these assets was 2022 when it touched $900 million. The key driver to this growth was foreign investments which rose six times last year as compared to 2019. India’s GDP is pegged to grow at 6.6% in 2023 as per IMF and the report adds that at such a time when India’s economic outlook remains sturdy amidst global challenges, the business case for alternative investments will only strengthen. “While core sectors continue to dominate the institutional inflows in the Indian real estate sector, the share of alternatives has risen significantly from 3% in 2019, to 18% during 2022,” said Piyush Gupta, managing director of capital markets &amp; investment services at Colliers. The billion dollar investment idea Since 2019, <keyword id="16069" type="General" weightage="20" keywordseo="data-centers" source="Orion">data centers</keyword> have received $1 billion of institutional inflows, with inflows rising multi-fold in the last five years. During the period under review (2019- H1 2023), data centres accounted for about 51% share in the total investments in alternatives, the report said. “India's data centre market is experiencing rapid growth, fuelled by a remarkable surge in virtualisation, e-commerce, cloud computing, and the prolific generation of public data. As the world's second-fastest-growing digital economy, India is set to witness the IT &amp; Communication sector's doubling by 2025, contributing approximately $400 billion to the Indian GDP,” said Amit Sarin, MD at Anant Raj, a real estate developer. The Government of India has recently enacted the Data Protection Bill to ensure protection of data and this has further boosted the demand for data centres, say experts. Data centres are also witnessing large platform deals between developers and investors who are looking to grow their businesses multi-fold. In May 2023, Lumina CloudInfra, a data centre platform owned and managed by Blackstone’s Real Estate and Tactical Opportunities funds, announced its plan to invest more than $300 million to develop a hyperscale data centre campus in Navi Mumbai. Reliance Industries also partnered with Brookfield Infrastructure and Digital Realty for developing data centres in select locations in India. Co-living — an emerging sector Other alternative asset classes such as life sciences, co-living have also seen increased traction, Colliers say. Alternate assets also include senior housing, holiday homes, student housing and co-living properties. The co-living sector in India too saw expansion during Covid-19 pandemic. “This growth has led to increased organisation within the sector, with only committed and reputable players remaining in the business. The demand for co-living accommodations continues to surge nationwide, indicating a promising outlook,” said Sunny Garg, co-founder &amp; CEO, Crib, a SaaS-based property management solution provider. Co-living also offers higher rental returns compared to traditional rental arrangements, making it an enticing prospect for institutional investors, Garg adds. The trend is also going beyond metros, experts say. “This demand is emerging in tier II cities as well. To meet this growing demand, we have strategic plans to expand our facilities into tier II cities like Ahmedabad,” said Abhishek Tripathi, co-founder, Settl, a co-living space developer.

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