2024 Geopolitical Environment and CRE Impacts

The events of 2023 proved the significant influence of political and macroeconomic impacts on commercial real estate operating environments. For example, ongoing industrial policy in the US, stemming from geopolitical pressures, continues to impact industrial and tech-adjacent properties. With continued nearshoring, a mixed performance from China and energy markets remaining relatively stable, the macroeconomic environment is signifying positive indications for the year ahead.

The US Grows Amidst Political Discord

The United States has had the strongest post-pandemic growth among all developed nations, per the OECD.¹ While it will likely slow, growth is expected to extend into 2024.

Real estate tailwinds from national industrial policies and subsidies, onshoring and nearshoring, and higher household incomes will likely continue —if less robust than in 2023 — while cooling inflation mitigates any potential headwinds. Further strengthening the market, the Fed is likely finished raising interest rates and may see fit to reduce rates later in the year. The debt ceiling debate will return, though we do expect compromise once again.

Given the US political environment, there are limited opportunities to pass any new legislation, however, we expect to see change at the state and local levels. As state legislatures debate ESG, worker pay & benefits, social inclusion and healthcare, site selection and location strategy will be more interlinked with politics than ever. Newmark is adapting our models to assess any related challenges and opportunities.

CRE Takeaways:

• Interest rates stabilize and potentially begin to fall.

• As highlighted by Newmark’s Jack Fraker in GlobeSt’s Beyond E-Commerce: What Else is Driving CRE Industrial Demand? Webcast, industrial properties will benefit from shifting supply chains and continued federal support for advanced manufacturing.

• Divergent state and local policies may impact companies’ ability to attract and retain industrial workers, as well as manufacturers, depending on positions around ESG or Chinese-linked firms, for example.

US-China Tensions Ease, Though Long-Term Concerns Persist

A détente was reached between the US and China in 2023, which we expect to hold. China is experiencing a slowing economy, plunging FDI, a softening real estate sector and a shrinking population. In such an environment, we anticipate the US and China will welcome warmer relations, as previewed at Biden and Xi’s recent meeting in California.

However, China's state policy continues to promote expansion and industrial development, and the need to address China’s ambitions is the subject of a rare bipartisan agreement. We keep an open mind but consider the situation more a temporary slowdown in China’s activity than a relaxation in the country’s policies.

CRE Takeaways:

• Macroeconomic trends favor nearshoring and onshoring, increasing demand for industrial properties, particularly in the US.

• Technology, advanced manufacturing and biotech hubs will flourish, all benefiting CRE.

Eastern Europe Demonstrates Resilience, Green Energy Slows

Europe’s post-pandemic economic recovery lags behind the US and may stagnate into 2024. Germany fell into a technical recession in 2023 and has suffered economically with Russia’s invasion of Ukraine and a slowdown in exports to China.

That said, some regions on the continent show encouraging signs. Poland, where a recent election has reversed EU funding risk, leads a strong Central and Eastern Europe. In Romania, recovery continues apace; 2024 elections are expected to keep the current political party in power. With increasing nearshoring opportunities and improving overall governance, Newmark has a positive outlook on Eastern Europe.

Energy was a concern last year, but a mild winter reduced the impact of disrupted Russian natural gas supply. While a “green transition” will continue in 2024, it will be tempered. Energy security is improving on diversified LNG supplies, while local coal remains a cost-effective solution for the near term.

CRE Takeaways:

• High demand will be persistent for industrial properties in Central and Eastern Europe, though the availability of labor may become an issue in these heating markets.

• Legislation addressing energy efficiency will expand, though we expect regulations specific to new construction to be limited in scope.

Political and Economic Might of Tech Flexes

The influence of major technology firms rivals that of nation-states, a trend that will continue into 2024.

Companies like Alphabet, Meta and Microsoft, alongside their founders, have the means to shape economic policy in their favor. Technological innovation will be central to the global economy, extending capacity to influence international politics.

The European Union has had some success in regulating the largest social media and search companies, though industry lobbying will limit similar regulation in the US. This early in the cycle, government oversight on AI remains uncertain.

CRE Takeaways:

• Cities and regions focused on technological development and supported by government incentives will continue to grow, increasing demand for multifamily and office properties.

• The evolution of AI will lead to a massive increase in demand for data centers, though concerns around access to power networks and hydroelectricity may imply modest political risk.

Other key areas to monitor:

• Energy: New US and Brazilian supply capped oil price increases, offsetting OPEC’s push to reduce production. Supply will be steady in 2024, and as green energy development continues, price volatility should be low.

• US State Elections: Politicians facing election challenges will be motivated to announce new deals, though politically sensitive development may be deemphasized.

• Office v. Remote Work: Corporate preferences remain fluid, though hybrid models are generally becoming the norm. Given ongoing geopolitical risks, companies may favor remote workers to reduce infrastructure costs.

• Green Energy: Wind power development is slowing, while solar panel installations are on the rise. Solar power generation and energy efficiency improvements will likely be favored in the near term, as wind turbines often require higher scale and cost.

---

¹Noah Sheidlower. “The US economy is doing way better than the rest of the rich world.” Business Insider. July 7, 2023. Accessed at: https://www.businessinsider.com/us-economy-doing-way-better-than-rest-of-rich-world-2023-