The US real estate market is facing a challenging outlook as the economy is expected to enter a recession by late 2023 or early 2024, according to CBRE1. However, Justin Rosenberg, head of real estate at KKR, a leading global investment firm, does not see a capitulation scenario for the sector.
In an interview with Bloomberg2, Rosenberg said that he believes the US real estate market is more resilient and diversified than it was during the global financial crisis of 2008-2009. He pointed out that the supply-demand dynamics are more balanced, the debt markets are more disciplined, and the capital flows are more diversified.
Rosenberg also said that he sees opportunities in certain segments of the market, such as industrial and logistics, multifamily, and niche sectors like data centers and life sciences. He said that these sectors are benefiting from secular trends such as e-commerce, urbanization, and innovation.
Rosenberg acknowledged that some sectors, such as office and retail, are facing headwinds from changing consumer preferences and work patterns. However, he said that he does not expect a widespread distress or fire sale in these sectors. He said that he expects a gradual recovery and adaptation as landlords and tenants adjust to the new normal.
Rosenberg also commented on the impact of rising interest rates and inflation on the real estate market. He said that he does not expect a significant increase in cap rates, which measure the rate of return on real estate investments. He said that cap rates are driven by many factors, such as risk premiums, growth expectations, and alternative investments. He said that he expects cap rates to remain stable or increase slightly in 2023, as CBRE forecasts3, but not enough to offset the positive cash flows and rent growth in the sector.
Rosenberg concluded by saying that he remains optimistic about the long-term prospects of the US real estate market. He said that he believes that the US offers a unique combination of scale, liquidity, transparency, and innovation that attracts investors from around the world. He said that he expects the US real estate market to continue to outperform other asset classes over time.