Why the world now needs more than it can build — and what that means for multigenerational capital.

Hines, one of the world’s largest private real estate investment firms, has released its 2026 Midyear Outlook, titled “The Scarcity Advantage.” Its core argument is simple to state and important to understand: for years, investors worried about whether there would be enough demand for buildings, factories, and housing. Today, the harder problem is supply — the world cannot build fast enough to keep up with what it needs.

What four forces are driving this scarcity?

Hines’ Global Chief Investment Officer, David Steinbach, frames the problem as four powerful waves hitting the global economy at once. Each wave increases demand for the same limited things: land, labor, power, materials, and the capacity to build.

At the same time, construction activity has fallen sharply in many markets, the approval process for new projects (called entitlement) has taken longer, and there have not been enough skilled tradespeople to keep pace. Hines believes this combination — rising demand and falling supply — is the defining investment story of the next several years, and that it will reward investors who can actually build, operate, and reposition real assets, not just those who correctly predict where the economy is headed.

What is the broader economic backdrop right now?

GROWTH WITH FRICTION

According to Hines Research, annual economic growth has been positive across most major economies, led by India, Hong Kong, Denmark, China, South Korea, and Poland, while the United States has grown at a more middling pace. Positive growth is good news for property owners because it helps support demand from tenants. But growth alone does not solve every problem — inflation has stayed stubbornly high in the U.S. and reaccelerated in several other markets, which limits how quickly central banks can lower interest rates.

Bond yields — the interest rate governments pay to borrow money over ten years — have stayed elevated across the U.S., the U.K., Australia, Europe, Japan, and several emerging markets. That matters for real estate because when borrowing is more expensive, buyers cannot rely on falling interest rates to boost property values. Instead, Hines argues that value must now come from real income growth: raising rents because supply is scarce, running properties more efficiently, and buying assets at a reset (lower) price — not from the mathematical benefit of a falling discount rate.

Oil prices and Middle East tension have remained an important swing factor. Prices have stayed below their recent peaks, and although futures have ticked up, they remain relatively flat — suggesting markets currently expect the conflict to stay contained, even as consumers remain more worried, reflected in stubborn inflation expectations.

How healthy is leasing demand across property types today?

To measure this, Hines Research uses what it calls a Leasing Environment Health Score (LEHS) — a single number from 0 to 100 that combines vacancy, rent growth, and demand growth for a given market and property type. A score above 70 signals conditions favor landlords; a score below 30 signals weak leasing activity; 50 represents the long-run average. Importantly, Hines notes that a low score does not automatically mean a poor investment — it can simply mean pricing has already reset to reflect the weakness, creating an entry point.

Why does Hines call the living sector its highest-conviction theme?

In the U.S., the apartment leasing environment has remained difficult, with record-high vacancy rates and flat rents in many markets, especially the supply-heavy Sunbelt. But quarterly apartment construction starts have fallen to their lowest level in 14 years, which Hines expects will improve the balance between supply and demand over the next couple of years. That could create a window for investors who can buy today, while the market is still weak, at a reset price.

In Europe, the apartment score was notably stronger, even as rent growth slowed to 3.9% from 5.9% a year earlier — still a healthier landlord position than in most U.S. markets. In Developed Asia outside Japan, institutional rental housing is less mature but is rapidly attracting capital, supported by wage growth and more single-person households. Student housing has also stood out in Europe, particularly in cities like Paris and Barcelona, where strong universities and restricted development pipelines have limited new supply just as international demand has grown.

Has retail real estate become a scarcity story too?

Retail has quietly benefited from more than a decade of very little new construction, alongside the removal of outdated or obsolete space. Hines argues the best retail assets today function less like ordinary shopping space and more like “localized infrastructure” — properties that dominate their trade area, host productive tenants, serve everyday necessities, and curate a relevant mix of stores.

Grocery-anchored shopping centers remain the most intuitive institutional opportunity, but Hines stresses selectivity: a grocer’s competitive position, lease terms, and how well its sales compare to its rent all matter as much as simply having a grocery anchor in place. In Europe, retail rent growth accelerated past 5% in 2025, with retail parks in France, Spain, Italy, and the U.K. leading the way. In Australia, grocery-anchored retail has rebounded from a pandemic-era low score of 8 to 58 — its healthiest reading since 2010 — supported by strong population growth and almost no new supply.

Is the industrial and logistics boom over?

Not over, but uneven. Industrial real estate continues to benefit from long-term tailwinds tied to e-commerce, AI-related infrastructure investment, and companies reshoring supply chains closer to home. However, near-term U.S. data has been more cautious: 340 million square feet remain under construction, and that lingering supply has pressured rents, particularly in outer-ring “suburban corridor” locations that saw the heaviest building during the last cycle.

Hines believes smaller infill warehouses — those located close to population centers on land that is difficult to replace — should outperform generic bulk warehouses built in overbuilt corridors. Tokyo’s industrial market, by contrast, scored a strong 91, reflecting a recovery from past overbuilding alongside falling vacancy and accelerating rents. The firm’s overall message: industrial should be treated as a “fast-follow” strategy that targets scarcity and modern building specifications, not a blanket bet on the whole sector.

Why does Hines say office is no longer a blanket avoid?

The recovery has been highly uneven, or “stratified” in Hines’ language. Trophy buildings and strong Class A towers in mixed-use, transit-connected, amenity-rich neighborhoods — including parts of New York and San Francisco — have started recovering meaningfully. Undifferentiated, older commodity office buildings have not. In Asia, Tokyo office remains one of the strongest office markets in the world, while Australia’s office market has lagged but may benefit from minimal new supply expected from 2027 onward.

Hines currently finds U.S. office credit (lending against office buildings) more attractive than owning office buildings outright, because cautious lenders have been able to negotiate stronger loan terms and lend against properties at a lower cost basis — offering a cushion of safety that direct ownership does not.

What about data centers, self-storage, and senior living?

Hines groups these under “alternatives” — sectors with strong underlying demand that still require careful, specialized underwriting rather than blind enthusiasm.

DATA CENTERS

Demand tied to AI and cloud computing remains a powerful long-term theme, but Hines is clear that the real bottleneck is no longer land or buildings — it is access to power, grid interconnection, government approvals, and the certainty that a project can actually be completed. Where and how quickly new capacity can be delivered increasingly depends on permitting and community support, not just capital.

SELF-STORAGE

This sector has become “more complicated than it looked six months ago.” Rent growth had appeared to be recovering through late 2025 but has since reversed, even as the underlying supply-and-demand balance has improved — the amount being absorbed by renters has outpaced new supply for the first time since 2021. Hines expects near-term momentum could worsen before the trend eventually turns favorable.

SENIOR LIVING

Demographic tailwinds are real and durable, but Hines insists these properties be underwritten as operating businesses — dependent on the quality of the operator, the care model, local affordability, and staffing availability — not simply valued as if they were ordinary real estate.

What is happening in real estate capital markets?

Capital markets are healing faster than actual leasing demand — and Hines views this as the clearest evidence that the broader real estate cycle has turned a corner. Debt markets are now largely open for every major property type except office, with traditional lenders more comfortable financing apartments, industrial, and retail than they were even a year ago. Even office lending has started attracting more competition, mainly from alternative lenders financing properties that have already reset to lower valuations.

Transaction volume — the total dollar amount of properties bought and sold — has recovered from its weakest levels, though April 2026 momentum briefly slowed due to uncertainty tied to the Iran conflict before reaccelerating in May. Hines views industrial as remaining highly competitive among buyers despite softer fundamentals, thanks to embedded rent growth in existing leases, while apartments are improving as the supply wave crests, and office continues to require asset-specific conviction rather than broad-based buying.

What is Hines’ single midyear message for investors?

Hines expects the next phase of this cycle to reward investors willing to move before the recovery becomes obvious to everyone — but only where the underlying evidence genuinely supports the risk being taken. Their framework rests on three legs: staying disciplined in how deals are underwritten, focusing on assets where operational execution and strong locations can compound value, and prioritizing durable, long-term demand over short-term market timing.

Frequently Asked Questions

What is the “scarcity advantage” in Hines’ 2026 Midyear Outlook?

It is Hines’ view that four global forces — artificial intelligence, energy demand, security and sovereignty concerns, and demographic change — are increasing demand for land, power, labor, and infrastructure faster than new supply can be built, making difficult-to-replace assets especially valuable.

Is now a good time for family offices to deploy capital into real estate?

Conditions are thawing but selective. Pricing has reset and debt markets have reopened for most property types, but Hines cautions against broad, indiscriminate risk-taking in favor of targeted acquisitions where scarcity and executable financing intersect.

Which sectors does Hines favor right now?

Global living (apartments, student housing), select infill industrial, powered land for data centers, mixed-use developments, necessity-led retail, U.S. office credit, and targeted new development where barriers to entry are high.

Why is office no longer a blanket avoid?

Construction is at record lows and leasing has posted four straight quarters of positive absorption as of mid-2026, but the recovery is stratified — strong for trophy and top Class A buildings, weak for commodity office — so conviction must be asset-specific.

What should family offices watch in the second half of 2026?

Whether capital-market liquidity translates into real leasing fundamentals, Middle East oil and shipping volatility as a swing factor, and construction starts across apartments, industrial, and office as the seeds of future scarcity.