Why UBS thinks you should gradually increase your exposure to the global direct real estate sector By Investing.com
Investing.com – UBS believes investors should gradually increase their exposure to global direct real estate, citing improving market conditions and attractive investment opportunities.
In a note to clients, UBS highlights key trends and forecasts shaping the global real estate market.
The real estate sector faced significant challenges as transaction volumes fell 44% in 2023 compared to an already weak 2022.
However, UBS forecasts global transaction volumes to recover to around $800 billion in 2024, up from $600 billion in 2023.
“Market volume peaked at $1.25 trillion in 2021; “The investable global market for liquid commercial real estate is estimated at $35 trillion,” the bank writes.
However, the lack of forced sellers is said to lead to limited transaction volumes.
“Capital-rich investors are now starting to deploy capital,” states UBS, underlining its strong position in asset acquisition.
Leasing activity in key segments such as high-end offices, retail and hotels remains subdued, according to the bank, but shows signs of recovery.
Meanwhile, rental income is rising due to rent flipping and indexation, which UBS believes will play a critical role in offsetting ongoing value corrections.
Looking ahead, the bank expects inflation and interest rates to have peaked, making real estate investments more attractive as expanded yield spreads offer attractive opportunities. They assume that the growth in rental income will increasingly compensate for the value adjustments and do not expect a significant expansion of the credit spread due to refinancing pressure.
After a challenging 2023 with a total return loss of 4.1%, UBS expects the global real estate sector to experience a capital loss of 3.6% but an income return of 4.5% in 2024. By 2025, they forecast returns above the long-term average of 7.5%. , driven by a 9% increase in transaction volume.
