Key highlights

  • We expect a milder recession from mid-2024 than previous forecast
  • Cracks are starting to show, and distress is becoming more obvious in US real estate
  • Elevated supply should ease by the end of this year, which supports our outlook for a recovery in 2025
  • United States economic outlook


    US activity and labour market data show few signs of distress. The latest payroll report points to stronger-than-expected hiring in recent months. However, headwinds to growth are building. Pandemic-era savings will eventually run dry and, along with restarting student loan repayments and tightening financial and credit conditions, this will weigh on consumption. Businesses will feel the pinch from higher borrowing costs. These will weigh on margins and profits, which will eventually trigger job losses. That is why we still forecast a recession – although shorter and milder than previously feared – around mid-2024. However, the runway for a soft landing has clearly widened.


    Subdued consumer price index (CPI) and personal consumption expenditure (PCE) inflation over recent months has fortified hopes for a soft landing. We think the summer soft patch overstates the deceleration in inflation. Underlying inflation dynamics are firmer when we account for disinflation from more volatile components. Fundamentally, we think wage growth remains too hot to be confident the US inflation shock is over. It is possible that inflation continues to ease without a significant labour market adjustment. But, on balance, we think further easing in activity and the labour market will be required to deliver a sustainable return to the Federal Reserve’s (Fed) 2% target.


    The Fed held rates unchanged in September, but continued to signal one more hike this year in its updated policy forecasts. Strong short-term data supports the case for a hike, but the recent tightening in financial conditions could persuade the Fed that this is not required. Thereafter, we think rates will be on hold until the economy starts to roll over, with a first cut in June 2024, followed by a pronounced easing cycle. We now expect rates to trough at 2%, with a milder downturn necessitating less policy support. A soft landing would leave rates higher for longer.

    (%) 2022 2023 2024 2025
     GDP  2.1 2.3 0.6 1.1
     CPI 8 4.2 2.3 1.6
     Deposit rate  4.38 5.63 3.38 2.13

    Source: abrdn September 2023
    Forecasts are a guide only and actual outcomes could be significantly different.

    North American real estate market overview

    As we head into the final quarter of this year, there is some light at the end of the tunnel. Inflation has slowed down and we expect another rate hike in November to end the cycle. This should be followed by rate cuts from mid-2024.

    Despite interest rates remaining elevated for a bit longer, we are observing cap-rate expansion starting to slow down across sectors. That said, we are finally seeing valuation data reflect the sentiment of office assets in the market.

    The latest valuation for Chicago’s Aon Centre demonstrates the lack of conviction in a full return to the office. Aon Centre is now valued at $414 million, a 47% drop in value from its first review.

    Distressed opportunities within the multifamily sector could take a while to play out. But opportunities should be most prevalent in places where smaller investors, with a value-add focus, have bought assets over the past two years. This is predominantly the Sunbelt, but traditional gateway markets, such as New York, have not been spared either. Recently, seven loans from Emerald Equities’ 28-property portfolio across the Bronx have been transferred to special servicing.

    In the retail sector, we are still seeing positivity in strip retail. But we are cautious about the near-term risk of falling consumer confidence and consumption, as households are braced for the return of student loan repayments.

    That said, student loan repayments are unlikely to have a significant impact on the wider economy. More comprehensive measures of household finances, such as cash-in-hand and a rise in home equity, suggest that the finances of many American consumers could be more resilient than previously thought.

    Outlook for risk and performance

    We are bearish on US offices, as occupiers struggle to get employees back into the office. Weekly physical occupancy is still less than 50% of pre-covid levels nationally. Effective rental growth will be weak as sublease availabilities force direct landlords to entice occupiers with increasingly large concessions. The likely departure of WeWork will cause some significant problems for landlords who have exposure to the co-working platform.

    Dense coastal multifamily markets in the east coast seem to be the straightforward play. They have a relatively low supply compared with the Sunbelt markets. With inflation running below national levels, they should be able to drive demand and rental growth. There could also be select multifamily properties that could be picked up for attractive prices. Alternatively, they could be a debt play.

    Similarly, we like strip and standalone retail, particularly grocery or discount-store-anchored properties in the Sunbelt and Midwest. These should benefit from the higher population growth and limited supply pipeline.

    We are bullish about industrial and logistics markets surrounding the Gulf and east coast ports. We think these ports should be primed to capture more shipping volumes as friend-shoring becomes more prominent. Recent infrastructure upgrades to the ports of Savannah and New Jersey should attract more shippers because of nearshoring/onshoring opportunities. Land border traffic is expected to grow, too. We expect Atlanta and northern New Jersey to have strong rental growth, as a result. We’ll likely see markets with developed intermodal terminals, such as Dallas and Atlanta, post strong rental growth over the next three years.

    North American three- and five-year forecast returns

    EMEA Real Estate Outlook Chart 1: European Total Returns from September 2023

    Source: abrdn, October 2023

    Forecasts are a guide only and actual outcomes could be significantly different.