PGIM Real Estate Global Outlook: Striking the right portfolio balance late in the cycle
25 June 2019 - 11:00PM
Business Wire
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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Dr. Peter Hayes, Global Head of
Investment Research, PGIM Real Estate (Photo: Business Wire)
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. Ref:
19CBLIG-BD9LQ2
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version on businesswire.com: https://www.businesswire.com/news/home/20190625005600/en/
MEDIA: Caroline Bligh 973-802-6837
caroline.bligh@pgim.com
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