Global real estate returns turned positive in the second quarter following two years of cumulative losses, suggesting a budding recovery in the asset class.
In the era of low interest rates, real estate values were flying high. Globally, total returns reached 5.0% quarter-over-quarter in Q4 of 2021 and 17.8% year-over-year in the subsequent quarter – figures that were well above long-term averages. The tightening cycle that followed more than unwound those gains, with values now back to 2018 levels globally.1
We believe the real estate market correction is nearly complete and investors should take a fresh look at the asset class, which has historically generated stable income returns and portfolio diversification benefits over the long-term — and can offer robust returns during a recovery period. For example, after the early 90s recession, investors experienced a 76% cumulative return over the next five years. Following the tech-wreck, the five-year cumulative total return was 98% and in the aftermath of the Global Financial Crisis, 86%.
EVIDENCE OF A TURNAROUND IN... VALUATIONS
In the second quarter of 2024, global value losses moderated to 0.74%, the lowest quarterly adjustment of the prior two years. With offsetting income returns of 1.07%, global real estate notched a positive 0.33% return, the first positive quarter since the second quarter of 2022.
Across the 15 global markets that comprise of the MSCI Global Property Index, a slight majority experienced write-ups in real estate values during the second quarter for the first time since Q2 2022. Eight markets saw values increase from the prior quarter: Japan, South Korea, Singapore, Southern Europe, the Nordics, the Netherlands, France, and the United Kingdom.
Six markets saw value losses between 0.3% and 1.5%, all of which had moderated from the previous quarter. Only Australia recorded a larger write-down in the second quarter than it did in the first — a 4.2% correction which brought valuations more in line with the country's peer set. However, change in capital values is only one component of real estate returns. Historically, the larger component of total returns is income.2
Sources
1 MSCI Global Quarterly Property Index (Q2 2024 data as of 4 September 2024 data release)
2 MSCI Real Capital Analytics CPPI (as of Q2 2024)
Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.
For professional investor use only. PLEASE SEE IMPORTANT DISCLOSURES IN THE REPORT'S ENDNOTES
