INTRODUCTION Contributed by: John Sullivan and Matt Alshouse, DLA Piper LLP
markets and global markets generally. Whether the nascent tariff disputes continue, and what their effects on real estate might be, remains to be seen, but for the time being what was a fairly optimistic outlook for 2025 has been tempered. 2024 global trends and results In the post-COVID inflationary landscape, central bankers aggressively raised interest rates in most major economic zones. The resulting increase in the cost of debt led to some unbridgeable bid ask spreads, as owners of property needed time to adjust to the lowered market value of their assets. These elevated interest rates also presented many property owners with a Hob - son’s choice: sell their property now as long as they could get enough to repay their debt, or hold on in the hopes of a recovery, lower inter - est rates and/or the willingness of the lender to extend/restructure upon maturity. Much of the activity in global real estate markets over the course of 2022 and early 2023 centred around loan restructurings. MSCI Real Capital Analytics estimated that real estate sales decreased by 51% from 2022 to 2023, and the Urban Land Institute reported that global transaction activity within commercial real estate was lower in 2023 than in any year since 2012. In the second half of 2024, the real estate mar - kets benefited from the easing of interest rates. After raising interest rates to combat inflation nearly a dozen times between March, 2022 and July, 2023, leading to a 23-year high in rates, the US Federal Reserve made three consecutive rate cuts. The European Central Bank reduced rates four times in 2024. Other central banks reduced rates from their COVID-inflation fighting highs (with the exception of Japan, which had a negative interest rate for unique macroeconomic reasons going into last year and finally moved back into positive territory).
Although long-term interest rates did not nec - essarily fall as short term rates decreased, the easing of inflation and reduction in benchmark interest rates were welcome developments for the real estate market and, when combined with record amounts of capital available for invest - ment and solid or improving fundamentals in many asset classes, the start of 2025 brought a general sense of optimism and a feeling that the adage “stay alive till 25” may have been presci - ent. The results, at a macro level, are as follows. I) Markets continued to find the bottom The latter part of 2023 and 2024 saw some of the foreclosures, deed-in-lieu transactions and fire sales that were necessary to unclog the market. ATTOM, a leading property transac - tions data aggregator, noted that there were 625 commercial mortgage foreclosures in the United States in March 2024, the highest since 2014. By contrast, May 2020 saw just 141 commercial foreclosures. The Wall Street Journal reported in July of last year that over USD20 billion of retail, apartment and office loans had been foreclosed on in the United States in just the second quar - ter. At the same time, deed-in-lieu turnovers and distressed sales increased in regularity. Many of the world’s largest real estate investors hand - ed over the keys to over-leveraged properties. German commercial property values dropped another 5.4% in 2024, after a 10.2% plunge in 2023, according to the vdp (a German bank - ing association). Promisingly, however, prices actually increased half a percentage point in the fourth quarter last year. These signs of the mar - ket bottoming out were seen across the globe, if not as dramatically.
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