Real Estate Development & Construction

Real Estate Industry

Q4 2023: Mergers and Acquisitions Trend Report

Industry Overview

  • The real estate industry is one of the largest contributors towards the US GDP and impacts the lives of every inhabitant and firm.
  • The success of the real estate industry is heavily reliant on interest rates. Rapid rate hikes or cuts can create a very volatile macroenvironment within the real estate space, often directly associated with nationwide recession.
  • Consumers and households make up most of the need for real estate services, while business and industrial markets make up most of the demand for rental & leasing services.
  • Real estate is a very capital-intensive industry, making it susceptible to supply chain disruptions and sudden changes in the geo-political environment.

Key Industry Trends

  • Extreme interest rates following the end of the COVID-19 pandemic have made it much harder for consumers and businesses to rent or lease property, as rises in interest rates put upward pressure on mortgage rates, thrusting rental prices upwards. Though as rates increase, revenue in the industry also benefits from these boosted prices.
  • As per capital disposable income rises, consumers will generally be able to afford sector products, such as apartments and homes for rent, boosting sector demand.
  • As median house prices have declined since the end of the COVID-19 pandemic, home ownership rates are likely to increase throughout 2023, which will decrease the demand for rental housing, slowing industry performance.

Recent M&A Transactions

Historical Performance

  • Median rent in the United States has been climbing since the Great Financial Crisis, and over the past three years in particular, it has risen at historically high rates. This growth in rent paired with mostly stagnated wages was exacerbated by the COVID-19 pandemic.
  • The COVID-19 Pandemic severely damaged the business sector as mandatory work-from-home policies became enforced. Rising rates incentivized many companies to halt expansion projects back into office, promoting a new culture of remote work and slowing the industry.

Future Industry Growth

  • Aggregate revenue in the real estate industry is expected to decrease from 2023 – 2028 by roughly .3% annually. The bulk of this loss is attributed to the post-COVID housing bubble and interest rate hikes.
  • H2 2023 saw a reported 45% drop in investor purchases of homes, indicative of a general decline of consumer confidence – the lowest it has been since the GFC.

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