PGIM Real Estate identifies nine major occupier and investment trends for 2019
PGIM Real Estate has published its latest annual investment research paper, Trends for 2019.
It looks at the outlook for the global real estate market and identifies nine major occupier and investment trends that it expects to influence market conditions and investment performance in 2019 and beyond.
- Tighter monetary policy environment: History suggests monetary policy tightening will eventually be followed by slowing returns on real estate, although accommodative fiscal policy should help offset its impact.
- Occupier markets holding up: Resilient global growth continues to support most occupier markets — office and logistics are recording strong demand and falling vacancy, but retail is struggling.
- Supply growth threatened by rising construction costs: 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 rise of flexible offices: Flexible offices are a fast-growing and increasingly prominent part of the office market, with the largest scale in major global gateway cities.
- Yield compression slows further: Rising interest rates and upward pressure on the risk premium from policy uncertainty mean yield compression is set to slow further.
- Transaction volume still tracking sideways: Transaction volume is stable, although a recent increase in the average size of new funds points to a growing share of portfolio deals in 2019.
- Retail value correction: The prospect of value write-downs implied by retail REIT pricing suggests retail is going to remain out of favor in 2019.
- More operational risk: Low core returns and a rising share of value-add capital raising points toward further investment in operating assets that offer an additional risk premium.
- Lender discipline persists: A degree of caution persists among lenders, keeping loan-to-value ratios down and creating an opportunity for a growing private debt fund sector.
