Time for real estate
2025 looks brighter for real estate, with limited supply and growing demand.
We think the outlook for global residential and commercial real estate investments is bright. With declining and constrained supply paired with rising demand, we see opportunities in sectors including logistics, data centers, and multifamily housing. Investors should focus on strategic acquisitions and diversification to capitalize on these favorable market dynamics.
The global real estate market is poised for greater activity in the year ahead, driven by lower capital costs, increased debt availability, and over USD 400 billion in private capital ready to be deployed. Although transactions had previously halved due to high leverage costs, the current environment of lower interest rates and tighter borrowing spreads should boost deal activity.
Favorable supply and demand dynamics
Favorable supply and demand dynamics
Robust real estate demand is meeting constrained new supply. Since COVID-19, construction activity in both commercial and residential sectors has been limited due to increased regulation and higher costs. This has resulted in a scarcity of new, quality space, even in the challenged US office market.
These dynamics are likely to lead to decreasing vacancy rates, rising rental growth, and capital appreciation.
Investment opportunities
Investment opportunities
Both public and private real estate markets are trading at attractive yield gaps and offer good discounts, in our view. We recommend focusing on sectors with strong fundamental dynamics:
- Commercial: Logistics properties, data centers, and telecommunication towers are well-positioned, particularly in the US and Europe, benefiting from trends like e-commerce and AI, and have barriers to entry.
- Residential: Broad exposure to multifamily, senior, and student housing sectors is advisable, although we are less optimistic on the sector in the UK and China.
- Retail: Selective opportunities exist, particularly in need-based retail properties.
- Office market: Caution is advised, with a focus on prime, high-quality central office spaces, which should outperform lower-tier, older properties.
Public market performance
Public market performance
In listed markets, we anticipate double-digit performance overall. While US real estate companies have strong balance sheets, Singapore developers and REITs, along with Japanese and Hong Kong developers, are expected to benefit most from interest rate cuts, as we believe they have not yet fully priced in improvements compared to their US and European counterparts.
Private market strategy
Private market strategy
In private markets, we expect similar performance. We focus on core/core-plus real estate managers capable of generating income and capital growth, particularly in our key sectors. We also favor managers who can execute opportunistic acquisitions through take-privates or joint ventures with asset owners seeking liquidity. Additionally, we see opportunities in real estate debt.
Regional variations in direct real estate
Regional variations in direct real estate
At a regional level, direct real estate investments in Canada, the US, and Continental Europe may, in our view, yield the most attractive returns owing to strong rental growth and falling interest rates. Conversely, we are less optimistic about the UK residential market because of affordability issues. In China, we foresee challenges and expect residential investments to deliver lower-than-average returns.
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Disclaimers
Disclaimers
Year Ahead 2025 – UBS House View
Chief Investment Office GWM | Investment Research
This report has been prepared by UBS AG, UBS AG London Branch, UBS Switzerland AG, UBS Financial Services Inc. (UBS FS), UBS AG Singapore Branch, UBS AG Hong Kong Branch, and UBS SuMi TRUST Wealth Management Co., Ltd.