The so-called "sugar rush" is over, as property investment returns — long buoyed by intense investor demand, cheap debt and strong fundamentals — are primed for a reset, according to a new report from ULI and PwC.

Whileotal returns for the institutional-quality real estate in the NCREIF Property Index (NPI) ticked up to more than 20% in the four quarters ending in mid-2022, nearly three times the 20-year average, those returns are predicted to come down.  According to the 47 economists and analysts surveyed in April by ULI's Center for Real Estate Economics and Capital Markets, total returns will moderate to 8 percent in 2023 and 7 percent in 2024. And more than half the respondents to this year's ULI/PwC Emerging Trends survey say they think capitalization rates will come up next year while returns tick down, primarily due to rising interest rates and capital costs. As rates drive up debt costs and in turn the costs to acquire and develop property, tick up, leveraged returns are reduced. reducing leveraged returns. What's. more, the government is also turning off the spigots of monetary and fiscal policies designed to stimulate the economy during the pandemic.

"Property investors and managers are learning anew that whopping growth and profits eventually fall back to earth—a 'reversion to the mean,' to use finance jargon, or simply 'normalizing,' as numerous industry experts we interviewed put it," the report notes. "Some looming market adjustments will be cyclical due to the weakening economic conditions that most economists and real estate professionals expect, while others represent more of a return to normalcy after all the pandemic-fueled market distortions."