INTRODUCTION Contributed by: John Sullivan and Matt Alshouse, DLA Piper LLP
after a year-and-a-half of consistent falloff, was up 17%. Meanwhile, the Asia-Pacific logistics market had a record-setting year in uptake. With more and more people returning to daily routines that include spending time in central business districts, knock-on effects in retail, hospitality and tourism could begin to appear in the medium term. Inflation and interest rates As noted above, the efforts of central bankers to combat inflation by raising interest rates took a significant toll on the real estate sector. With inflation starting to get closer to central bank targets, there has been a growing expectation for interest rate cuts in 2024. However, the US Bureau of Labor Statistics (BLS) March report indicated that the US economy added 303,000 jobs in March, an acceleration in the pace of hir - ing, and other important labour market indica - tors in the BLS report, including a 3.8% unem - ployment rate and a 0.3% month-on-month rise in average hourly earnings, were also strong. In the UK, although the annual inflation rate fell in March for the second consecutive month, the fall was less than expected. These reports have generated some uncertainty about the timing and amount of rate cuts in the US and the UK. Rate cuts may come sooner in the European Union. The EU ended 2023 with a 3.2% infla - tion rate across its markets, and the rate has since gone down to around 2.6%. As a result, the European Central Bank has signalled that it could start cutting rates as soon as June.
While Asian markets tended to see far less drastic rises in their inflation rates – with China moving from around 5% before the pandemic all the way into a deflationary environment through - out 2023 – those markets have settled, as well. CBRE’s 2024 outlook for Asia anticipates enter - ing an “interest rate cut cycle” by midyear. Conclusion The global commercial real estate market has been on a roller coaster ride in recent years, with 2021–2022 representing the climb to the top, and 2023 reflecting the swift (and sometimes scary) descent. However, certain asset classes, such as data centres, continue to attract sig - nificant investor interest. More broadly, there are indications that the market may be at or near the bottom and poised for a recovery. The amount and timing of interest rate reductions will be a major factor in the market’s performance over the next 12 months, with a reduction in rates being a welcome tailwind, but any increase (or even the absence of a decrease) in rates being a significant headwind. In addition, the huge amount of low-interest-rate debt coming due over the next few years should force a repric - ing of many assets and thus spur investment activity.
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