Resilience and returns for US real estate help boost family fortunes

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In today’s uncertain global landscape, stability and transparency are paramount, and US real estate stands out as a stabilising force within a diversified portfolio.

The year 2024 has been marked by uncertainty — a contentious US election, capital market volatility and historically high interest rates have generated sensational headlines and created substantial challenges for the real estate industry. The broader economy has shown both resilience and vulnerability, adding complexity to long-term planning and decision-making for investors.

As we approach the New Year, recent interest rate cuts by the Federal Reserve and clarity following the US election have left stakeholders hopeful for more stable days ahead. Yet investment managers working with family offices have been forced to address concerns about the US economy and the outlook for national commercial real estate (CRE) assets amid persistent inflation and global economic shifts.

Despite muted transaction volumes and tighter lending conditions, now is an opportune time to invest in US real estate, particularly ‘multifamily’ developments, such as apartments and condominiums. While risks remain, maintaining a long-term perspective and pursuing opportunities with both stability and resilient growth potential are essential to navigating the current market.

Perceived scarcity

A frequent concern among investors is the risk of multifamily oversupply, given historically high volume of new inventory hitting select US markets. While this supply surge has increased competition in certain areas, national absorption rates still reflect consistent resident demand, with rents holding steady or rising in most regions and the first three quarters of 2024 rivaling only the historic peaks of 2021 in terms of renter appetite.

Another worry — particularly among those pursuing development-focused strategies — is perceived scarcity of new development deals, leading some to question potential for competitive returns. As a result, investors may feel drawn to acquiring “value-priced” older properties that seem more affordable and less risky than new builds. While this approach may offer short-term stability, investing in newly constructed, well-underwritten assets ultimately provides much stronger long-term returns.

The rationale is straightforward: despite the current influx of new deliveries, multifamily construction starts have recently plummeted. Moreover, the US still faces a housing shortage of over four million units, and rising costs of homeownership are causing many households to rent for longer. As we approach 2025 and beyond, the supply-demand balance is expected to shift back toward undersupply, positioning new developments entering the market in the coming years for more favorable outcomes.

Both foreign and domestic investors have closely monitored this year’s presidential election and its implications for US commercial real estate. Now, post-election, economists and industry experts are analysing how president-elect Donald Trump’s proposed policies may affect the market. However, looking back over the past 20 years, election cycles have had minimal impact on commercial real estate performance.

Mass deportations

Some investors have expressed concern about potential policy changes that could impact demand, such as Mr Trump’s proposed mass deportation policies, which might reduce the population, or increased rent control measures in liberal-leaning areas like New York. In our discussions with investors, we maintain a neutral, data-driven approach. While these concerns are understandable, they do not diminish the enduring strengths of multifamily real estate fundamentals: robust demand, stabilising supply, recovering rents, and positive wage and economic growth.

In today’s uncertain global landscape, stability and transparency are paramount, and US real estate stands out as a stabilising force within a diversified portfolio. For European investors, particularly those navigating prolonged geopolitical challenges in their own backyard, the openness and transparency of the US market present a compelling opportunity.

The US market’s appeal to foreign investors is also driven by its sheer size and diversity of political climates. If investors have concerns about policies in a specific state or region, they can target investments in other markets that align more closely with their interests and financial objectives.

While US real estate may serve as a safe haven for foreign capital in contrast to more volatile global markets, it is essential to evaluate the performance of individual asset classes. Historic and projected performance numbers consistently highlight the multifamily sector for its resilience in times of economic stress.

Though sectors like industrial and retail have experienced strong recent performance, multifamily remains widely regarded as a hedge against inflation. It is a necessity-driven asset class, as steady demand for high-quality, accessible housing persists even during periods of volatility.

As we enter the New Year, the US multifamily sector stands out as a uniquely weatherproof opportunity in an uncertain environment, supported by strong demographic trends and a long-term housing shortage. It should remain a cornerstone for portfolio diversification and reliable returns.

Kristi Nootens, co-head, CP Capital