PREA Quarterly: The pitfalls of “peak-to-trough” thinking

This article first appeared in Winter 2024 edition of PREA Quarterly

LaSalle’s Global Head of Research and Strategy, Brian Klinksiek, discusses why it’s important to go beyond heuristics to find relative value in global real estate.

Which global real estate markets are ahead and which are behind in the process of repricing?

This question, along with its many variations, has been by some margin the most frequent one asked of me when presenting LaSalle’s recently released ISA Outlook 2024. Investors understandably want to know where they can find value amid real estate capital markets that continue to adjust to higher interest rates. They want to focus their efforts on geographies and sectors for which the bulk of the price adjustment is in the rearview mirror instead of still lying ahead.

Attempts to answer this question with numbers often begin with simple comparisons of peak-to-current value declines. The implicit logic is that larger-measured todate declines for a market indicate that it is farther along in the repricing process or, simply, that it is cheaper and thus attractive. But these sorts of analyses are plagued by a range of measurement and interpretation issues that complicate comparisons. At best, they can lead to contradictory conclusions; at worst, they may contribute to missteps in investment strategy. Some of the key challenges are explored below.