UBS Advocates for Increased Investment in Global Real Estate

Why Consider Global Real Estate Investments?

As the landscape of global finance evolves, UBS encourages investors to consider enhancing their exposure to direct global real estate. This strategy comes as a response to the improving conditions and lucrative opportunities emerging in the market.

Current Market Trends and Projections

In their latest insights, UBS has outlined pivotal trends shaping the future of the real estate sector. Despite facing hurdles with a notable drop in transaction volumes—down by 44% in 2023 compared to 2022—the outlook is not entirely bleak.

UBS anticipates a substantial recovery in global transaction volumes, forecasting a rise to approximately $800 billion in 2024, up from $600 billion the previous year. This optimistic projection comes on the heels of a market high of $1.25 trillion in 2021, with the potential investable global liquid commercial real estate market valued at around $35 trillion.

Investor Sentiment and Market Dynamics

The current market has been somewhat restrained, primarily due to the absence of forced sellers, limiting the number of transactions taking place. However, UBS highlights that cash-rich investors are strategically starting to deploy their capital, positioning themselves to capitalize on attractive asset opportunities.

Across various segments, including high-quality office spaces, retail establishments, and hotels, leasing activities have remained somewhat quiet. Yet, there are emerging signs of rejuvenation, indicating potential growth within these sectors.

The Role of Rental Incomes

UBS emphasizes the rising rental income driven by factors like rental reversion and indexation. This increase is expected to play a vital role in safeguarding against ongoing value corrections in the market. Positive changes in rental trends can significantly offset losses, making real estate investments more robust.

Future Outlook for Real Estate Investments

Looking ahead, UBS holds an optimistic viewpoint regarding inflation and interest rates, suggesting they have reached their apex. This stabilization is expected to render real estate investments more appealing over time, with widened yield spreads presenting compelling opportunities for investors.

Rental income growth is projected to increasingly mitigate value corrections, ensuring a balanced return for investors. Additionally, UBS does not foresee any significant credit spread widening coming from refinancing challenges.

Investing in a Rebound Era

After a relatively tough year in 2023, which resulted in a total return loss of 4.1%, UBS is hopeful about the future. They predict that global real estate markets will experience a 3.6% capital loss but may see a promising 4.5% income return in 2024. By 2025, UBS foresees investment returns surpassing the long-term average of 7.5%, driven by a potential 9% recovery in transaction volumes.

Frequently Asked Questions

What is UBS's recommendation for real estate investment?

UBS suggests gradually increasing exposure to global direct real estate due to improving market conditions.

What are the current challenges facing global real estate?

The real estate sector has faced challenges including a 44% decline in transaction volumes in 2023.

What is the forecast for global transaction volumes in 2024?

UBS projects transaction volumes to rebound to approximately $800 billion in 2024.

What impact do rising rental incomes have on investments?

Rising rental incomes are expected to offset ongoing value corrections, making real estate investments more appealing.

What are the expected returns for real estate investments by 2025?

By 2025, UBS anticipates returns to exceed the long-term average of 7.5%, with a 9% rebound in transaction volumes.

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