CBRE Investment Management Executives Give Their Market Outlooks

CBRE (CBRE) Investment Management is the global investment arm of CBRE. As an independently operated affiliate of CBRE Group, the global real estate brokerage, CBRE Investment Management holds $146.2 billion assets under management as of December 2024, and plays across markets in 20 different countries. 

On Feb. 20, CBRE Investment Management hosted a breakfast press conference featuring several of its top investment professionals. Those leaders included Lucy Fletcher, fund manager of indirect real estate strategies; Liz Troni, portfolio manager of U.S. core real estate strategy; Bernie McNamara, head of client solutions; Robert Shaw, managing director of private infrastructure strategies; and Wei Lou, senior economist and global research director. 

Commercial Observer had a front-row seat for their remarks, with their key points outlined below. 

This conversation has been edited for length and clarify 

Wei Lou on the macroeconomic outlook for 2025: 

CBRE investment management has three macro key calls for 2025. The first one is global growth divergence. As the U.S. economy continues to outperform, American exceptionalism will be based on robust consumption and supply side loosening. We expect to see ramped up production in energy, manufacturing, especially in strategic factors like semiconductors and automaking, but it could also be in pharmaceutical making. So, expect to see reduced barriers to production. 

The second key call is sticky inflation and higher-for-longer interest rates. We have been in this camp of higher for longer for over two years, but the market is going through a period of pricing in additional inflation and additional risk premium, and you could see that in very volatile market movements in Treasury bonds. Thee Fed has clearly turned more hawkish as tariff policies exacerbate such concerns of additional, higher inflation, but we expect two cuts this year from the Fed, and we expect to see a long-run nominal interest rate of 3 percent. If inflation turns out to be stronger than expected, and we are already forecasting pretty high levels, we’ll lean towards fewer cuts going forward. So, yes, we’re in a high interest rate environment, and we’ll likely stay there this year. 

The third key call concerns demographic headwinds. With a radical shift in immigration policy, we expect to see slower international migration. This affects our market selection and preferences. So we’ll favor markets that rely less on international migration and benefit more from domestic migration. So that means markets like Dallas, Phoenix, Austin and Nashville, which benefited greatly in the last 10 years from domestic migration as Americans moved to lower-cost, lower-tax cities, from cities like New York and L.A. We’ll continue to see that trend, so we’re going to study and focus on the markets that will be the next Nashville, the next Phoenix, the next Dallas. That’s going to the forefront of our market selection strategies. 

Bernie McNamara on client sentiment and what CBRE is telling its investors in 2025:

I’ll keep with the weather theme in terms of client sentiment. Things are warming up, and so, from conversations with CBRE Investment Management clients and investors, there’s been a clear shift for most investors from defense to offense, switching back to investing, with a particular focus on three areas: infrastructure, repriced core real estate, and the strategies to provide liquidity in a liquidity-constrained environment. Investors are realizing that the crosscurrents in the market actually might be tailwinds for investment opportunities right now, at least for the informed investor. 

So what do we mean by crosscurrents? From a macro perspective, it’s higher-growth prospects in the U.S., but also a higher-for-longer rate environment, cuts in federal spending, but higher-than-trend inflation, an uneven recovery of values and fundamentals across sectors and markets. For example, within real estate, there will be a robust, strong recovery for modern logistics, but still anemic [recover]y for legacy offices. But we see that switch from defense to offense both in industry data and in our own figures and activities. So industrywide, 2024 was the lowest capital raise year for private real estate equity since 2012. But the denominator impact for real estate pretty much has lessened, or even reversed for most investors, and investors remain chronically underallocated to infrastructure, which, by the way, had a bounce-back year for capital raise industrywide last year. 

And then across our own CBRE investment management platform, client engagement was up pretty much across the board in 2024 versus 2023. Capital raising, for example, across our platform was up 50 percent in 2024 versus 2023, completed [requests for proposals] and [requests for information] — which are a leading indicator of investment intention for clients — was up 40 percent, client meeting activity up 35 percent. And what my colleagues and I are discussing in those meetings with clients is: infrastructure, diversification for their portfolio, downside resilience, inflation protection, higher and stable incomes, as well as access to those megatrends of digitalization and decarbonization. 

It’s arguably a really attractive time to buy into high-quality core real estate portfolios that have been repriced due to valuation markdowns over the last couple of years, particularly those modern core portfolios that have exposure to the next generation growth sectors: modern logistics, specialty residential, health care, self storage, and the like. 

And then finally, we speak about strategies to be a provider of liquidity in a liquidity-constrained environment. So as rates remain elevated and financial refinances continue to be challenging for investors and managers, there are opportunities to be a provider of liquidity, for example, through secondary transactions or recapitalizations, gap equity, or just pure, down-the-fairway equity investing. It’s buying into high-quality core, or core-plus risk profiles, or assets portfolios with outsized return potential. But really importantly, not all deals, portfolios, markets, sectors, geographies are created equal. So the key is informed investing with the flexibility to invest nimbly and dynamically across sector’s markets and regions. 

Robert Shaw on the opportunities for infrastructure — particularly data center investment — in 2025: 

I want to frame what Bernie was talking about about the infrastructure opportunity. So after about two decades of relatively no growth in electricity demand in the United States, in 2024, electricity demand increased by 2 percent. It’s expected to grow again this year, and for the rest of the decade. Texas’s grid operator just released their large-load forecast for 2024, and they predict peak demand to grow from 86 gigawatts in 2024 to 153 gigawatts in 2033. What’s driving this huge spike in demand? It’s the large secular themes that Bernie was referring to: digitization and electrification. 

This creates a meaningful opportunity for infrastructure across both supply and demand. From the demand side, infrastructure capital is required to build a data center capacity, increase fiber and telecom connectivity that really enables data generation, transmission, and processing that supports our increasingly digital economic and social lives. It’s also required to build up EV charging networks, to support building and process automation, and install heat pumps as our buildings, our manufacturing, and our logistics supply chains seek to electrify in order to bring down their operating costs and become more efficient. 

But this creates a huge amount of power that we’re going to be putting onto the grid. How are we going to supply this? Again, infrastructure comes in with the capital solution. We need to build out electricity generation and storage to meet this large supply and demand need. This is a trillion-dollar opportunity, and that’s why people are excited, but there are risks. There’s trouble permitting infrastructure projects, both from building permits, environmental permits, and NIMBYism. Then there’s also the large interconnection cues that we hear about. There’s one terrawatt of solar projects currently in the interconnection cues in the United States. That’s enough to power 95 million homes for the entire year. There’s also 93 gigawatts of data center capacity in the interconnection grids, and that will basically double the amount of data center capacity that’s currently in the United States. 

Lucy Fletcher on global investment trends:

I’ll start by saying no markets move in tandem. It’s an attractive vintage today for investment, as you heard from Bernie, as 86 percent of the portfolio is in next-generation growth sectors. We are seeing global growth diverge at a macro level and that flows through to what we do as a global investor in real estate. As a global core-plus investor today, we believe we’re well positioned to take advantage of the opportunities that the cycle is presented. 

For example, today we see value opportunities in Europe, principally because the European Central Bank, starting in June last year, has been in a rate-cutting cycle, whereas in Australia where we look at our portfolio, we still are seeing elevated rates. In Australia, they were the last, as you may recall, to come out of COVID, and that lag effect has continued in the real estate sector, as well. Albeit, I would say that today we are starting to see those values bottom in an opportunity to reinvest into the market. 

Secondly, it’s an attractive vintage for investing. We’ve seen material capital value declines vary, but we’ve seen material capital values decline beginning Q2 of 2022. That’s now eight to 10 quarters of continual declines. I’m sure you’re aware the real estate indexes have just come out and for the first time posted a positive quarter, which is a really good sign that markets are now bottoming. Capital values have declined in most market sector combinations anywhere between 15 percent in Asia Pacific to 20 percent to 30 percent in North America. So we believe this is an attractive entry point for our clients as they think about a global diversification strategy. 

Importantly, fundamentals have remained robust, so we are very focused on those sectors that generate a strong income profile, particularly in an elevated rate environment. And for us, that is residential, industrial, and health care real estate. And we have low traditional office exposure, and in fact no traditional office exposure in the U.S., in the global open-ended core-plus [investment] vehicle. We currently are favoring essential and necessity product types. Specifically, we really like essential retail. Retail has been out of vogue for almost a decade, I think, but we’re really focused on that nondiscretionary spend, particularly in North America and Europe today. Our sector convictions here at CBRE Investment Management are really focused on the four D’s. For us, that’s demographics, digitization, deglobalization and decarbonization. 

Liz Troni on the evolution of core real estate in the U.S.:

There are powerful shifts happening in real estate that may not be visible to the naked eye. The first is, as Bernie mentioned, the return of informed investors to this space. That has been absent for a couple of years since the Federal Reserve moved interest rates in 2022. We started to see a decline in valuations, and investors rationally withdrew from the sector. That has now stabilized, and they are looking at that period of time and seeing a 20 percent to 30 percent decline in valuations. And for informed investors that can hold their nerve through the current volatility, they are now seeing an attractive entry point combined with durable cash flows. 

Second, there’s been a standoff between buyers and sellers. The bid-offer spread can elevate to 20-plus percent in the market with little liquidity. When that starts to reduce to zero to 5 percent, we’re seeing normal activity, and a more agreeable environment for transaction liquidity, and that’s largely where we are today, and we’re looking at various metrics of bid-offer spreads. It’s that zero to 5, zero to 10 percent range, not 20 to 30 percent range, [where investors are in] a much more comfortable operating environment and a clear shift. 

And then there is the third shift, and perhaps the most important point. When we think about all this instability, how’s an investor feeling comfortable today when they’re watching the news at night and there is so much instability and uncertainty around policy and the outlook? How is it rational to participate in this environment confidently? And what they’re seeing is this very large and important shift from classic real estate sectors into next-generation and operational real estate. That’s a long-term trend that experienced investors can identify and feel confident about as the future of core real estate. Those sectors are self-storage, life sciences, medical office, student housing, senior housing. And why do we become comfortable as a core investor in this? We have sectors like hotels and multifamily that taught us that we can deal with individual tenants, and they can leave on a daily basis, they don’t need to sign a 10-year lease and stay in place for 10 years. 

Brian Pascus can be reached at bpascus@commercialobserver.com