1. Rising Interest Rates

Rates certainly can’t get any lower in most developed markets, and all sensible real estate pros are preparing for rising interest rates in 2014. While the when and how are impossible to predict, the impact is not: rising rates will put pressure on cap rates and valuations. Just how much comes down to real estate fundamentals and the ability to raise net operating income to offset the higher financing costs. Those are very open questions as we head into the new year. Whatever the outcome, smart investors view rising rates as a challenge and an opportunity. More than $350 billion of commercial real estate debt will mature in 2014, including $67 billion of CMBS, which is expected to experience the greatest challenge in refinancing. In January 2013, Barclays Capital estimated that only 50 percent of the CMBS loans originated in 2006 and 30 percent of those underwritten in 2007 had debt yields above 9 percent. With rising rates, the opportunities for CMBS workouts increases significantly.

2. Booming Foreign Capital Flows

Foreign investment played an unprecedented role in global real estate markets in 2013, and as investors continue to seek income and yield, 2014 is likely to be an even bigger year for cross-border capital flows. The biggest players? Asian investors, particularly the Chinese, who are being encouraged by Beijing to diversify and spend its mountain of foreign capital reserves. It’s not just the U.S. and its gateway cities, often the primary targets of foreign investors, that are benefiting. London topped the ranking of cross-border real estate investment in the 12 months to December 2013, according to Real Capital Analytics, attracting $22 billion of investment in more than 160 properties. Manhattan was in second place with $7 billion of deals; Paris, Sydney, and Shanghai followed close behind.

3. A Wave of GP Consolidation

One of the biggest challenges facing managers this year will be the ongoing trend among LPs to trim their GP relationships. This makes size and scale more attractive, so look for more GPs to team up via merger or acquisition. The news isn’t all bad— with consolidation also comes the opportunity for new managers to shine through.