NEW YORK, June 25, 2019 - Elevated global real estate pricing continues to be supported by low interest rates and there are still reasons to be optimistic about the outlook for income growth, according to PGIM Real Estate’s 2019 Global Outlook. PGIM Real Estate is the real estate investment business of PGIM, the $1 trillion global investment management businesses of Prudential Financial, Inc. (NYSE:PRU).
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The midyear investment research paper identifies themes and assesses opportunities in an environment where the prospect of a downturn almost appears to have been factored in as an inevitability, and sentiment is under pressure from weaker news on global economic growth.
“The challenge for investors in the current environment is striking the right balance between taking on risk to capitalize on late-cycle growth opportunities and investing in strategies that offer greater downside protection against falling values,” said Dr. Peter Hayes, global head of investment research, PGIM Real Estate. “Downside protection can be achieved not only by investing in debt, but also in lower volatility sectors such as residential.”
According to PGIM Real Estate’s report, current global investment opportunities fall into the following categories:
- Late-cycle growth opportunities that are primarily linked to ongoing cyclical momentum and low supply growth;
- Structural trends, including demographic shifts that support demand in the low-volatility residential sector and boost income growth potential in sectors such as senior housing;
- Debt strategies that offer downside protection and are benefiting from a growing opportunity set, notably in Europe and the United States.
“The rise of debt investing is a trend that has been consistent across regions,” Dr. Hayes said. “Interest in real estate debt strategies is growing both as a response to a regulatory-driven opportunity that has arisen and as an effective way for investors to protect capital against downside risks. Capital is also being attracted from traditional fixed income investors looking for enhanced return potential.”
In each region, PGIM Real Estate has assessed current conditions, looked at how the cycle is going to play out, and identified investment opportunities that strike the right balance between protecting against risks and generating returns.
- Americas: The current U.S. cycle is the longest on record. While there are some reasons to be cautious, occupier momentum is positive, and investors remain active. Returns have slowed but the outlook is supported by the contained supply cycle and steady rental growth. Sunbelt markets are benefiting from favorable demographic trends, while investors are looking to non-core sectors such as senior housing for income growth potential. Debt strategies could offer diversification and downside protection potential.
- Europe: While sentiment indicators have weakened and slowing yield compression is weighing on returns, capital is still targeting major European real estate markets. Low supply growth gives some cause for optimism about prospects for income growth. Late-cycle opportunities include low vacancy office markets and logistics, and the U.K. stands to perform well if Brexit uncertainty fades. For investors looking to reduce risk exposure, structural trends in the living sector and in debt strategies could offer an attractive route to achieving a balanced portfolio.
- Asia-Pacific: Economic growth momentum has eased slightly on the back of trade tensions, but Asia-Pacific remains an attractive destination for global capital. While some occupier markets are reporting slower momentum, the region is diverse and there are still plenty of growth opportunities, including in the logistics sector, where vacancy is low. Returns are slowing but supply-constrained markets could offer further income growth potential, while living sector assets could benefit from favorable structural trends.
For more details, download the paper: PGIM Real Estate Global Outlook: Striking the Right Balance.
About PGIM Real Estate
PGIM, the global investment management business of Prudential Financial, Inc. (NYSE:PRU), is one of largest real estate investment managers in the world, with more than $171.2 billion1 in gross real estate assets under management and administration, as of March 31, 2019. Through its PGIM Real Estate and PGIM Real Estate Finance businesses, PGIM leverages a 140-year history of real estate lending on behalf of institutional and middle-market borrowers2, a 49-year legacy of investing in commercial real estate on behalf of institutional investors, and the deep local knowledge and expertise of professionals in 31 cities around the world.
PGIM Real Estate, the real estate investment management business of PGIM, has been redefining the real estate investing landscape since 1970. Combining insights into macroeconomic trends and global real estate markets with excellence of execution and risk management, PGIM Real Estate’s tenured team offers to its global clients a broad range of real estate equity, debt, and securities investment strategies that span the risk-return spectrum and geographies. For more information, visit pgimrealestate.com.
1AUA equals $33.7 billion.
2Includes legacy lending through PGIM’s parent company, Prudential Financial, Inc.
About PGIM and Prudential Financial, Inc.
With 16 consecutive years of positive third-party institutional net flows, PGIM, the global asset management business of Prudential Financial, Inc. (NYSE:PRU), ranks among the top 10 largest asset managers in the world** with more than $1 trillion in assets under management as of March 31, 2019. PGIM’s businesses offer a range of investment solutions for retail and institutional investors around the world across a broad range of asset classes, including fundamental equity, quantitative equity, public fixed income, private fixed income, real estate and commercial mortgages. Its businesses have offices in 15 countries across four continents. For more information about PGIM, visit pgim.com.
Prudential Financial Inc.’s additional businesses offer a variety of products and services, including life insurance, annuities and retirement-related services. For more information, please visit news.prudential.com.
**Pensions & Investments’ Top Money Managers list, May 27, 2019; based on Prudential Financial Inc. total worldwide institutional assets under management as of Dec. 31, 2018. Assets under management (AUM) are based on company estimates and are subject to change.
These materials are intended for Institutional and Professional Investors only. All investments involve risk, including the possible loss of capital. Past performance is not a guarantee or a reliable indicator of future results. The views expressed in these materials are for informational or educational purposes only. The information is not intended as investment advice and is not a recommendation about managing or investing assets. In providing these materials, PGIM is not acting as your fiduciary.
© 2019 PGIM is the primary asset management business of Prudential Financial, Inc. (PFI). PGIM Real Estate is PGIM’s real estate investment advisory business and operates through PGIM, Inc., a registered investment advisor. Prudential, PGIM, their respective logos as well as the Rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide. PFI of the United States is not affiliated with Prudential plc, a company headquartered in the United Kingdom.