Hines pivots from buying to building as supply collapses

Real estate's next cycle will be defined less by the deals closing today than by the buildings that were never started during the downturn. Hines, the $92 billion real estate firm, is moving capital accordingly, tilting from acquisitions back toward development after a stretch of three to four years in which it was buying more than it was building.

Alfonso Munk, managing partner and co-head of investment management, told Bisnow that development is becoming the profitable deployment again: "Investors will go into a particular part of the cycle thinking that their capital needs a return — and I think development is going to generate a very attractive return going forward." The firm is targeting assets in sectors and locations where a "scarcity advantage" has built up during the building freeze.

U.S. industrial development has fallen 60% from its 2022 peak, according to Cushman & Wakefield; London office development has halved since 2023 per Deloitte's annual Crane Survey; and European multifamily investment has dropped 20% in three years from an already low base while residential construction sits at a 20-year low, according to JLL. Not every sector froze, California industrial and Sun Belt multifamily kept barreling along, Munk acknowledged, but the breadth of the decline leaves a pipeline gap that two years of ordinary building will not close, and fewer starts now mean pricing power for whoever delivers into the gap first.

The collapse compounded: construction costs spiked after 2022, inflation ended a long dormant stretch, and higher interest rates made the cost of borrowed money exceed what rents could support, so development stopped broadly and left a hole in the physical pipeline.

The arithmetic is now shifting: financing costs have stabilized, and while U.S. and UK base rates remain elevated, lender margins are low by historic standards because a growing field of debt providers is competing for construction loans and lenders are again comfortable funding development. Cost growth has slowed, even though prices are unlikely to fall, and oil has not risen as much as feared despite the prolonged war in Iran, in part because China's renewables build-out has reduced its reliance on fossil fuels. The lender comfort Munk describes reverses the post-2022 freeze, when construction credit was among the first to shut and the last to reopen.

The shift also changes the risk profile for debt providers: a wave of development would put more construction loans on bank books, shorter-duration, higher-margin credits that have been scarce, and the competition Munk describes is a sign of capital looking for a home in the one door that has been closed since 2022.

In its most recent market outlook, Hines declared a buying window in half its markets and identified a 6.5 million-unit U.S. housing gap as the demand-side anchor, as PRED covered at the time. The development restart is the supply-side response to that same data: if half the world is priced to buy, the most attractive buys may be the buildings no one has broken ground on yet.

For allocators, the question is whether the supply gap translates into underwritable returns: development profit is the spread between future rents and today's construction and financing costs, and if Hines is right that the cost side has plateaued and rents will catch up in scarcity markets, the firm captures a margin that trading existing assets cannot deliver in the current repricing. If costs decline further or rents lag, the firm takes on entitlement, leasing and construction risk at a point when most institutions are still harvesting existing assets, and the managers who wait for transaction volume to recover are effectively buying into a market Hines is already building for.

The scarce asset is the building that hasn't been started. Hines is betting that construction holds the next margin, that funds waiting for transaction volume to recover will end up buying into a supply gap Hines is filling now, and the 2027 and 2028 completion schedules will settle whether the scarcity thesis was a timing call or a structural one.