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- The real estate sector is on track to gain from inflation and historically low rates, BlackRock says.
- The analysts threw cold water on the notion that offices are on their way out, writing that new properties could see more demand.
- Overall, BlackRock expects a small decline in real estate demand, rather than a real-estate bloodbath.
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The real estate sector is on track to gain from higher inflation and lower-than-expected interest rate hikes, though the effects will be far from uniform, BlackRock analysts wrote in a market commentary note.
The analysts threw cold water on the notion that offices are on their way out, writing that big, new, green properties could see more, not less, demand as the economy reopens. Employees' desire for flexible, dynamic workplaces alongside investors' growing calls for deeper ESG commitments could buoy the right properties, especially in cities.
Conversely, small, less sustainable properties – and the companies that own them – could see their fortunes diminish. Overall, BlackRock expects a small, heterogeneous decline in real estate demand, rather than a real-estate bloodbath.
Logistics firms, with extensive investments in properties like warehouses, could get caught between two opposing trends. On one hand, growing ecommerce demand will likely benefit the logistics sector, yet many parts of that market are "nearing peak valuation," according to the BlackRock note.
BlackRock flagged a more dovish Fed as a key factor behind optimistic real estate valuations, writing that the central bank seems poised to raise rates less quickly than during previous bouts of inflation. They project inflation to drive up rental income and lower interest rates to support property valuations.