Morgan Stanley Co-CEO: Real Estate at an Inflection Point for Recovery

Real Estate Market Outlook

• 💡 Morgan Stanley Co-CEO Lauren Hochfelder believes the real estate market is at an inflection point heading into 2026.
• 🎯 Current conditions suggest sellers are more motivated, buyers are more interested, and debt markets are open, signaling a potential transition into a recovery period.
• 📈 Real estate values are down approximately 25%, having been flatlining for some time.

Factors Influencing Buyer Behavior

• ⚠️ A year ago, similar conditions existed, but dislocation in capital and occupier markets due to uncertainty (like supply chain issues) caused decision-makers to pause.
• 🏢 This pause particularly impacted industrial real estate, leading to a downtrend in rents for the first time in a long time.
• 📉 While overall rates are down, specific sectors like data centers are down nearly 16% year-to-date, and office rates are down about 14%.

Sector Strengths and Necessities

• 🏠 Real estate is not a monolith; different sectors perform differently. Class-A office buildings in New York City and data centers are areas of strength.
• 🔑 Performance is tied to what human beings need and what infrastructure supports daily life.
• 📈 Residential real estate, broadly speaking, is necessity-based and currently undersupplied.

Senior Housing as a High-Conviction Strategy

• 👵 The 80+ population is expected to grow by 50% over the next five years, indicating a significant demand for senior housing.
• ⚠️ Even with current penetration rates, there is an undersupply, with construction at about half of what is needed.
• 💰 This demographic also holds a substantial portion of the country's wealth, making senior housing affordable through savings and asset appreciation.
• 📊 For private-pay assisted living, affordability is tracked through savings and asset drawdown, with home price appreciation enabling many seniors to afford it.