The global real estate market has been navigating a challenging landscape for nearly two years, but some hope / expectations of eventual recovery are beginning to emerge.
According to PitchBook’s H2 2024 Global Real Estate Report, preliminary data from Q3 2024 suggests that private real estate returns may finally be turning a corner.
The research report added that this cautious optimism is bolstered by shrinking net percentages of banks tightening lending standards for real estate and modest improvements in commercial property price indexes.
However, the path to a full rebound remains uncertain, with fundraising for private, closed-end real estate vehicles lagging significantly and market dynamics clouded by macroeconomic concerns.
The report from PitchBook highlights that 2024 is on track to be one of the slowest years for real estate fundraising in a decade.
Only $66.7 billion was raised across 204 funds through the first three quarters, a stark contrast to the $137.6 billion raised across 389 funds in 2022.
This slump reflects a broader hesitancy among investors, driven by an unpredictable economic environment.
The prospect of Federal Reserve rate cuts, once a beacon of hope for the sector, is now in question as fears of resurging U.S. inflation loom large.
Elevated interest rates have increased borrowing costs, squeezing property owners and deterring new fund commitments, while a sluggish exit market—projected to hit a decade-low of $55 billion in 2024—further complicates the picture.
Despite these challenges, some investors see a silver lining.
The PitchBook report also mentioned that the current market downturn has led to steeply discounted asset pricing, which the update describes as a potential “generational buying opportunity.”
Distressed and opportunistic strategies are gaining traction, with dry powder for these vehicles reaching $203.8 billion globally by Q2 2024—over half of the total $376.1 billion in uninvested capital across real estate funds.
The PitchBook report pointed out that North America holds the lion’s share of this capital at $266.2 billion, signaling a concentrated pool of resources waiting to capitalize on undervalued assets.
The report from PitchBook further notes that value-add and opportunistic funds accounted for 53.8% of capital raised in 2024, underscoring a shift toward higher-risk, higher-reward strategies.
Performance trends offer additional context for this cautious optimism.
Preliminary Q3 2024 data shows a one-year horizon IRR of 1.7% for private real estate, a marked improvement from the -9.8% recorded in Q3 2023.
Core and core-plus strategies, typically more stable, posted positive returns of 2.3% and 3.7%, respectively, while opportunistic funds led with a 7.2% IRR.
These gains suggest that certain segments of the market are stabilizing, even as broader recovery remains elusive.
However, the PitchBook research report warns that persistent inflation and tighter monetary policy could delay a full turnaround, particularly if rate cuts fail to materialize.
The real estate sector stands at a crossroads.
While fundraising struggles persist, the combination of improving returns, discounted assets, and substantial dry powder hints at latent potential.
Investors willing to navigate the uncertainty may potentially find fertile ground, but clarity from the Federal Reserve and broader economic signals will be critical to unlocking the market’s next phase of growth.
For now, the real estate industry participants may be observing key trends and waiting on the sidelines, as the market anticipates recovery and a rebound at some point.