BEYOND THE ECONOMY: STRUCTURAL DRIVERS FOR REAL ESTATE

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BEYOND THE ECONOMY: STRUCTURAL DRIVERS FOR REAL ESTATE

5/19/2026

Kevin White, CFA

Global Co-Head of Real Estate Research

City skyline of Frankfurt at sunrise with high-rise office towers, construction cranes, and warm sunlight between buildings, partially overlaid with geometric teal design elements on the sides.

There have been nine real estate downturns since the 1950s, roughly one every eight years.^[1] All but one cycle ended with recession, while the last one suffered an interest-rate shock (in 2023-2024).^[2] Indeed, our analysis suggests that over the past 30 years, GDP and corporate bond yields have explained 70% of real estate returns.^[3]

The economy will play a critical role in shaping this cycle, in our view. However, we believe that two additional factors will tip the scale in a more positive direction: First, structural forces will reinforce demand. Second, supply will largely dissipate.

Until recently, demand was hampered by a series of post-COVID distortions, in our view. These include remote work in the office sector and a hangover from a pandemic boom in the apartment and industrial sectors (exacerbated, in the case of Industrial, by tariffs). However, we believe these forces have moved into reverse. In the office and apartment sectors, absorption is handily outpacing job creation, underpinned, in our view, by a return-to-office and the relative affordability of rental versus for-sale housing.^[4] Industrial leasing has also picked up, in our view supported by e-commerce, and in some markets, onshoring and AI (supplying factories and data centers), while the drag from tariffs appears to be fading.^[5] After lagging for three years, growth in real estate demand is now commensurate with that of the economy, and poised, in our view, to overshoot it.^[6]

Even more impactful, in our view, is an impending supply slump. We believe that the 2023-24 real estate correction, alongside surging labor and materials costs, has upended the economics of development.^[7]
Construction starts (as a share of inventory) have plunged 60% from their 2022 peak, pointing to an equivalent reduction in deliveries over the next 2-3 years.^[8] With real estate prices sitting at about a 10%-15% discount to replacement costs (varying across sectors and markets), rents and prices would need to rise considerably to rekindle development, in our view.^[9]

Economic conditions are inherently uncertain, and could push returns in either direction, in our view. Regardless, we believe that firming structural demand and dwindling supply will augment real estate performance relative to any macro-driven baseline.

Additional Resources

Real Estate Minute | March 5, 2026

3/5/2026

Student Housing: A Resilient Asset Class in a Shifting Market

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