PGIM Real Estate has identified nine global real estate trends that it expects to influence market conditions and investment performance.
First up is a tighter monetary-policy environment. History suggests that monetary-policy tightening will eventually be followed by slowing returns on real estate — although accommodative fiscal policy should help offset its impact.
The second trend is that resilient global growth will continue to support most occupier markets. But while the office and logistics markets are recording strong demand and falling vacancy, retail is struggling.
Next up is the threat of rising construction costs to supply growth. Capacity constraints and rising costs in the construction sector are dampening the supply pipeline and point to upside risks to the rental-growth outlook.
The fourth trend is the rise of flexible offices, which are a fast-growing and increasingly prominent part of the office market, particularly in global gateway cities.
Trend five is that yield compression will slow still further, driven by rising interest rates and upward pressure on the risk premium from policy uncertainty.
Trend six is that transaction volume will continue to track sideways. While volumes are stable, a recent increase in the average size of new funds points to a growing share of portfolio deals in 2019.
The seventh trend is a retail value correction. The prospect of value write-downs implied by retail REIT pricing suggests that retail is going to remain out of favour in 2019.
More operational risk has been identified as trend eight. Low core returns and a rising share of value add-capital raising points towards further investment in operating assets that offer an additional risk premium.
Lastly, PGIM predicts that lender discipline will persist. Lenders continue to be cautious, keeping loan-to-value ratios down and creating an opportunity for a growing private debt-fund sector.
PGIM is the asset-management arm of Prudential Financial. PGIM Real Estate is PGIM’s real estate investment advisory business and operates through PGIM Inc.
This and more in the MIPIM Preview magazine; read it in full here…!