As 2024 officially gets under way, your MD of Assets at MetaWealth extends a warm and cordial greeting from my hometown of London as we venture into the prospects of 2024. With a background spanning multiple continents, and founder of a real estate investment fund that developed over 700 apartments, I'm here to offer a discerning analysis of the year ahead, tailored for our distinguished investors.

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Macro Landscape

The past year unfolded with the Eurozone’s inflation gracefully descending from its lofty double-digit peaks in 2022 to below 3% in 2023, amidst the backdrop of unprecedented interest rate escalations. Data this week shows that the Eurozone, alongside the US, elegantly sidestepped recession, setting the stage for a period of stabilisation in 2024. As consumer confidence rejuvenates and inflation retreats, we stand on the cusp of potential monetary easing in 2024, poised to invigorate the global economic and investment milieu, paving the way for modest projected GDP growth in 2025. As I write, the S&P500 and other US Indexes have hit all-time highs.

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Real Estate Reckoning‍

The European real estate realm experienced a formidable test in 2023, touching lows reminiscent of the post-Eurozone debt crisis era. Witnessing a dramatic 69% year-on-year decrease in investment volumes by Q3. Yet, the latter part of the year hinted at resilience, with Q4 volumes increasing to reach an overall annual decline of 44% particularly within our sectors of interest. Despite the overarching high interest rates casting shadows on various asset classes, "Beds" and "Sheds" have emerged as beacons of investor interest, signalling robust avenues for growth and innovation in the tokenization landscape. Currently, in the 16 major European markets, average prime returns stand at 3.9% for Retail and 4.4% for Logistics, marking an increase to the previous year by five and ninety basis points, respectively, with offices seeing an average prime return of 4.3%, up by 110 basis points.

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Offices - An Acquired Taste‍

In Q3 2023, global investment volumes hit their lowest point since the Global Financial Crisis, affected by both cyclical trends and structural issues, leading to reduced enthusiasm among investors. Particularly, investment in the office sector has decreased to just under 22% of this year's total transactions, down from a 27% average, as investors exercise caution due to rising interest rates, a slowing global economy, and the impact of continued work-from-home practices. This caution is further fuelled by uncertainties around the future of office spaces (20% vacancy in US and 8% in Europe) and the increasing emphasis on sustainability and the ESG driven flight to quality, making it harder for investors to plan their exits. Despite a somewhat negative portrayal in the US media, the situation varies significantly across different regions, indicating a more nuanced and complex global investment landscape.

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Retail Revival‍

The European retail market in 2023 faced challenges from tightening consumer finances and goods inflation, leading to a slight decline in retail sales but showed signs of resilience and potential for recovery in 2024. Investment in the sector decreased, yet retail parks and grocery stores maintained investor interest due to their occupational market strength. The luxury segment, particularly in prime high streets, continued to attract investment, indicating a selective but solid investor confidence in well-performing segments and locations across Europe.

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Logistics - The Path Forward‍

In Q3, European logistics assets saw transactions worth over US$6.8 billion, a 55% decline from the previous year, marking the lowest deal count since 2013 despite a modest 11% year-to-date fall compared to 2019. The Netherlands and France have underperformed, while Germany, Spain, and the UK, particularly, show resilience with investment levels potentially surpassing pre-Covid figures. Cross-border investors, led by US institutions like Blackstone, dominate the market with 60% of investment volumes, with significant interest from Singaporean and Canadian investors, while Chinese investment recedes. Despite current challenges, over 80% of investors in a Savills investor survey expressed strong interest in urban and big box logistics and data centres for 2024, hinting at a market rebound if the ECB opts for rate cuts to stimulate the economy.

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Living Sector - Foundations for Growth‍

Mirroring wider market conditions, H1 2023 investment in the living sector plummeted to its lowest in a decade at €182.6 billion, marking a 57% decrease from H1 2022 with Spain, the UK, Germany, France, and Italy experiencing significant drops. Again H2 2023 was a different story with volumes recovering quickly to see overall transaction volumes falling only 10.7% YoY. Capital values decreased in many key countries but there were pockets of opportunity with price increases. Despite experiencing declines in investment volumes and varied capital appreciation, riven by factors including affordability (interest rates & more stringent mortgage requirements), inflation, urbanisation, and supply shortages.

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2024 Horizon Watchlist

• Economics; (a) Inflation, (b) Interest Rates, (c) Monetary Inflation (d) Gov’t debt
• Political & Social:

• Elections; 2024 will be the biggest Election year in history, more than 70 elections to around 4.2bn people. Election outcomes could significantly influence both domestic and international investment (and order) landscapes.
• External Order and Geopolitics; Ongoing conflicts risk of escalation or expansion.
• Internal Order in pivotal countries; Gaps in wealth, opportunity & values, Internal conflicts.

• Technology: AI goes mainstream and impacts GDP. We remain net positive on AI.

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Parting thoughts

‍A tenet from my time as a commodity trader, where contrary to popular belief most positions were hedged (strategic vs speculative); Risk can be measured and therefore priced and managed, uncertainty cannot. It's crucial to distinguish between the two and act accordingly. While risks can be quantified and strategies can be developed to mitigate them, uncertainty represents the unknown and unpredictable elements that are beyond our control. Always be prepared to face uncertainty with a flexible approach, adapting swiftly to unforeseen market changes and maintaining a diverse portfolio to cushion against potential impacts.