2024 Winter Issue of Urban Land - 81

2010, which probably reflects anticipated buying
opportunities stemming from recent and expected
price declines.
Research also clearly shows more mixed
sentiment and diversity of outlooks among industry
participants. As one advisor to pension funds says,
" There's different people in different places for
different idiosyncratic reasons. There's some investors
that are full speed ahead, some are starting to pick
up their pencils, some that are still pencils down. "
Performance is very nuanced, with some markets
and property sectors that are outperforming, even
as others are struggling and significant bifurcation is
occurring within sectors such as office and retail.
Top markets
Respondents still see the best opportunities in the
Sun Belt, or so-called smile markets, spread across
the southern third of the country. Of the top 20
markets for " overall prospects, " 15 are located within
the Sun Belt. For the third year in a row, Nashville
is the number one market to watch, with Phoenix,
Dallas/Fort Worth, Atlanta, and Austin rounding out
the top five.
One industry consultant interviewed says, " There
has been a 50-year pattern of migration from
the Northeast and the Midwest to the Sun Belt.
There's no evidence in the last year that that trend
is abating. " The consultant added that, when you
consider the relative cost of living, the quality of life,
and the extent to which these states are businessfriendly
ones, " There's a reason ... some of that's
happening, and I think that that will continue. "
Also notable is that expectations are more
downbeat nearly everywhere. Survey respondents
gave lower ratings to 74 of the 80 markets in
the Emerging Trends coverage universe this year,
whereas only five improved. That decline could
be attributed to various factors, including a more
difficult investment environment generally, and a
recognition that some fast-growing markets are
experiencing growing pains or pockets of oversupply.
In addition, people are taking note of escalating risks
from climate change and higher insurance costs,
which could be viewed as a deterrent for some Sun
Belt markets.
Key trends
The key trends identified by industry professionals
are the following:
Higher and slower for longer. Economists have
dialed back predictions of a looming recession, and
the emerging consensus is that the economy is
headed for a soft landing or a " growth recession. "
The near-term outlook is for slow economic growth
IMPORTANCE OF ISSUES FOR REAL ESTATE IN 2024
Source: Emerging Trends in Real Estate 2024 survey
and at least moderate job growth, but with risks
weighted firmly toward the downside. Looking
further ahead, the U.S. economy appears to be
stuck on a course of slower economic growth and
higher interest rates, which will present a challenging
environment for real estate investors.
The Great Reset. Much of the high-octane
appreciation in real estate values during recent years
has been fueled by near-zero interest rates. In the
wake of Fed rate hikes, market participants need to
recalibrate their expectations to reflect diminished
drivers in the coming years to the detriment of rent
growth, property values, and returns. In the new
environment, investors will need to focus on basic
fundamentals, operations, and cash-on-cash returns.
Painful bifurcation for office. After three years of
remote and hybrid work, no reasonable expectation
of a full office market recovery to pre-pandemic
levels endures. What appears to be a permanent
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81
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2024 Winter Issue of Urban Land

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