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PGIM Real Estate’s investment research team identifies nine major trends expected to influence market conditions and investment performance in 2019 and beyond.

January 17, 2019

The current global real estate cycle counts among the longest in recent history, notably in the United States, which has now recorded almost a decade of uninterrupted capital value growth. However, investors know the cycle won’t last forever—real estate yield compression is fading, and returns are slowing.

In its Trends for 2019 outlook, PGIM Real Estate’s investment research team says that despite concerns about elevated real estate pricing, a perceived lack of available stock, heightened political uncertainty and a shifting policy environment, there is still plenty of capital targeting real estate. That provides some near-term reasons for optimism.

Above-trend global GDP growth, rising occupier demand and falling vacancies point toward opportunities to capitalize on favorable short-term momentum continuing in 2019. Constraints in the construction sector could dampen already low supply growth, implying upside risks to the rental growth outlook.

At the same time, shifting market dynamics are influencing the outlook for occupier and investment markets. Flexible offices are a growing part of the occupier landscape, while retail is increasingly out of favor with investors, with REIT pricing implying the threat of an impending value correction.

Low returns on core assets mean a shift towards value-add capital raising, and there is also growing interest in operating assets, which offer an additional risk premium to investors. Meanwhile, there are opportunities for private debt funds to lend against higher risk projects.

Investors may increasingly face challenges in 2019—from slowing returns, stock availability, an evolving policy environment, and shifting occupier and investment market dynamics. Concern that the cycle may turn needs to be balanced against ongoing opportunities, in the near-term, to take on additional risk and capitalize on favorable market momentum.

 

Read PGIM Real Estate’s Trends for 2019 and find more 2019 views on PGIM.com.

 

For a media interview with a PGIM Real Estate subject matter expert about global real estate trends in 2019, please contact Brendan Duffy.

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