March 01, 2017

PGIM Real Estate’s shares an optimistic outlook for 2017, while remaining a bit cautious. Global economic growth has been steady, although the boost from low energy prices is fading in developed economies and momentum is tilting back towards emerging markets. Meanwhile, if recent events are anything to go by, undoubtedly there will be more election-related twists and turns to come. 

Reflecting the broader economic story, real estate occupier markets are characterized by elevated uncertainty, moderate growth and an absence of meaningful acceleration. Leasing demand is slightly above average, but lacking momentum compared to previous expansion periods.

Like occupiers, investors remain cautious and the amount of capital going to just a handful of major markets – the top eight – remains elevated, particularly as rental growth in other markets that compete for global capital is subdued. Crossborder flows should recover from a dip in 2016, but pricing momentum is slowing at the same time as interest rates start to edge upwards.

As investors shift their focus towards income growth to meet required returns, PGIM Real Estate anticipates growing interest in value-add strategies in major markets, supported by the low supply environment, and in alternative real estate assets, which benefit from long-term growth potential arising from favorable structural trends. Meanwhile, interest in fast-growing emerging markets should start to recover from a low base as their relative growth story improves.

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