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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 a promising 2025, in our view, driven by several macroeconomic factors.

Falling interest rates are expected to lower financing costs, making real estate investments more attractive. This environment should encourage increased transaction volumes and capital deployment, with over USD 400 billion in private capital ready to be invested.

The supply-demand balance is improving. Constrained new supply, due to regulatory and cost challenges, should contend with robust demand, particularly in AI-linked sectors including logistics and data centers, as well as multifamily housing. This dynamic is likely to lead to decreasing vacancy rates and rising rental growth, driving capital appreciation over the next several years.

Private real estate

While some investors may be reluctant to put money to work in private real estate after valuation declines, limitations on redemptions, and concerns about corners of the market (like older US office assets), we believe a brightening outlook warrants investors’ reconsideration.

First, we believe the asset class will benefit from the relief of lower interest rates. This shift is expected to boost transaction volumes, as private funds put undeployed funds to work. According to CBRE, average US capitalization rates held steady at 7% in the first half of 2024, and we expect this favorable yield environment relative to bonds to persist into 2025.

Second, private real estate managers focused on the highest quality assets may be well placed to exploit sectoral divergence. For example, many private managers are allocating to the logistics sector, which we like, thanks to its healthy rental growth, pent-up demand, and a still-constrained pipeline of new developments due to prior increases in financing and construction costs. Data centers, another area of private manager focus, offer attractive return prospects amid the AI capex cycle, in our view.

Third, private real estate valuations have undergone significant adjustments since the downcycle began in 2022 and look set to stabilize. Limited redemption real estate fund net asset values (NAVs) declined until the second quarter of 2024, but they climbed 0.25% quarter on quarter in the third, according to NCREIF data. Public REIT valuations have already bottomed out and are beginning to rise, and typically lead private valuations. This trend suggests potential easing of pressures and early signs of market stabilization, making it an opportune time for strategic investments in private real estate.

Listed real estate

We also believe listed real estate stocks can deliver high-single-digit to low-double-digit total returns in the year ahead (FTSE EPRA Nareit Developed TR Index USD) for three reasons.

First, falling Interest ratesshould be favorable. Historically, real estate stocks rally 18-24 weeks before the first rate cut, with continued strong performance thereafter.

Second, appealing valuations should attract investors, with listed real estate trading at a discount to NAV. Earnings per share are projected to grow more in 2025 (6.3% versus 5.9% this year), driven by rental indexation and acquisitions. The sector's dividend yield of 3.7% is near its longer-term average (seven-year average) but should grow in appeal for income-seeking investors as the global rate-cutting cycle progresses and as bond yields likely fall in 2025.

How and where to invest?

In private real estate, we focus on perpetual capital vehicles investing generally in core and core plus assets—as a reminder, these are generally mature, high-quality properties whose returns come primarily from income generation.

We favor approaches focused on US and European assets, with the majority of assets operating in the logistics (including data center), industrial, residential, and select prime office areas. Within residential private assets, we like globally diversified approaches that focus not just on multifamily dwellings, but also more specialized fields like student and senior living accommodation. We also see appeal in vehicles that follow a triple net lease strategy (an agreement where the private managers’ tenants agree to pay a property’s taxes, building insurance, and repairs alongside their rent).

We generally expect such private vehicles to generate annual net total returns of around 7-9% (and up to 11% for triple net lease approaches) with around half to two-thirds of the total returns in the form of income payments.

In listed real estate, welike US REITs for their robust fundamentals and Singaporean developers and REITs, which are well-positioned to benefit from interest rate cuts. Hong Kong developers also present opportunities, although their REIT counterparts face challenges. Continental Europe remains attractive, but further catalysts are needed before increasing exposure.

Watch the video

As interest rates come down and economic growth proves resilient, will the real estate market finally bottom out? And where are the best opportunities? Jonathan Woloshin, CIO Americas Equity Strategist, Real Estate & Lodging, disucsses investing in real estate in 2025.

More investment ideas

Spinning carousel

Position for lower rates

13 Dec 2024

We expect central banks to cut interest rates further in the year ahead, reducing cash returns. We believe investment grade bonds offer attractive yields and expect mid-single-digit returns in US dollar terms. Diversified fixed income strategies and equity income strategies can also help investors sustain portfolio income.

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More to go in stocks

13 Dec 2024

We expect the S&P 500 to reach 6,600 by the end of 2025, around 8% higher than current levels. Tariff proposals should continue to contribute to volatility for European and Chinese markets, but we see value in maintaining diversified exposure to Asia ex-Japan. In Europe, we like EMU small- and mid-cap stocks and Swiss high-quality dividends.

Moving lights

Transformational innovation opportunities

13 Dec 2024

We expect significant and sustained profit growth in the transformational innovation opportunities of (1) Artificial intelligence and (2) Power and resources. By investing in these areas, we believe investors can earn strong long-term returns.

Moving lights on road

Sell further dollar strength

13 Dec 2024

While the US dollar may stay well bid in the near term, we believe its current valuation is stretched. We recommend investors use periods of further strength to reduce US dollar exposure through strategies such as hedging dollar assets, switching USD cash and fixed income exposure to other currencies, and utilizing options.

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Go for gold

13 Dec 2024

We expect gold to build on its gains in 2025. Lower interest rates, persistent geopolitical risks, and strong dollar-diversification trends likely see investor and central bank buying continue. Outside gold, we also see long-term opportunities in copper and other transition metals, with demand increasing alongside higher investment into power generation, storage, and electric transport.

Explore more of the Year Ahead 2025 report

In our base case, we expect sustained economic growth in the US, supported by healthy consumption, loose fiscal policy, and lower interest rates. Tariff threats are a headwind for Asia and Europe. If imposed, they could be partially offset by reactive stimulus measures in China. We expect growth in Europe to modestly improve as interest rates fall

A Trump presidency, coupled with Republican control of Congress, has the potential to reshape the global economic and geopolitical landscape. Key policy areas in focus for investors include tariffs, fiscal policy, deregulation, monetary policy, and international relations.

The 5Ds—debt, deglobalization, demographics, decarbonization, and digitalization—will be significant forces in the decade ahead that present opportunities and risks for investors. In aggregate, we expect them to lead to higher growth and periods of higher inflation over the long term.

Since the beginning of the decade, cash returns have struggled to surpass inflation and bonds have faced headwinds from rising interest rates. In contrast, equities have thrived, and private markets and commodities have offered robust returns. Looking ahead, we expect equities and private markets to continue to offer the highest potential returns.

Entering 2025, we believe stocks still have more to go, with our base case expectations of growth (despite tariffs), lower interest rates, and AI advancements. In fixed income, we think there is an opportunity to lock in yields for quality bonds. In currencies, while the dollar may remain strong in the short term, we believe it is looking stretched and advocate for selling it at further strength. We also like gold as a diversifier. Finally, we think the global real estate outlook looks promising.

Taking a step back, while these investment ideas present compelling cases for immediate action, developing a strategic plan that links goals with strategies can improve investors’ chance of success and help them stay focused on the bigger picture amid potential market turbulence.

We aim to provide the direction of travel for the economy and asset classes against a wide range of market outcomes ahead. The upside scenario would see lower taxes, deregulation, and trade deals adding to a positive market narrative built on solid growth and continued investment in artificial intelligence, while the risk scenario is that trade tariffs, excessive fiscal deficits, and geopolitical strife will contrib­ute to higher inflation, weaker growth, and market volatility.

Mockup of Year Ahead 2025 publication

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In this Year Ahead, we look at key developments that we believe will shape the next stage of these “Roaring 20s,” including US political change, falling interest rates, and transformational innovation in artificial intelligence and in power and resources.

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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.