Andrew Alperstein, PwC U.S. real estate partner, and Daniel Sullivan, PwC U.S. financial markets and real estate leader, discussed key takeaways of PwC and ULI’s Emerging Trends in Real Estate 2024 report, which incorporates data and insights from more than 2,000 industry experts.
One of the main themes of this year's report is what it terms the “Great Reset,” in which old assumptions are no longer valid. Alperstein said commercial real estate investors are going to have to be “more diligent, more operationally focused, as they strive to add value and profitability relative to recent years when low rates, decreasing cap rates, and a high amount of leverage was a big part of the way value was created and profitability was obtained.”
As for transaction volume, the current environment of higher rates, more rigorous underwriting from the lender side, and a pullback from the banks is going to make it challenging, particularly to get bigger deals done, Alperstein said.
Sullivan noted that with broader expectations that inflation has largely been beat, alongside anticipated stability in the 10-year Treasury, “we think it's going to be a lot easier for buyers to think that they're going to be getting in at the right time and that sellers aren't going to be leaving value on the table as they proceed to go ahead and transact.”
Elsewhere in the interview, Alperstein and Sullivan spoke about the role that REITs play in providing access to the modern economic landscape, the future of office, and the need for downtowns to reinvent themselves. They also touched on “eco-anxiety,” particularly the availability and cost of insurance. On a positive note, the impact of the Inflation Reduction Act on promoting the use of solar more broadly was also highlighted.