Skip to main content
PGIM Real Estate LogoPGIM Real Estate Logo
    • Company Overview
    • Leadership
    • Locations
    • Contact Us
    • Careers
  • Overview
    • Real Estate Equity
    • Real Estate Debt
    • Public REIT Securities
    • Defined Contribution
    • Agriculture
    • Private Equity
    • Impact Investing
  • Overview
    • Stabilized
    • Transitional
    • Mezzanine
    • Agency
    • Agricultural
    • ESG Overview
    • Environmental
    • Social
    • Governance
  • Insights
  • News
  • Client Portals
Graph
Quarterly REIT Outlook

Global Real Estate Securities Commentary 4Q 2021GlobalRealEstateSecuritiesCommentary4Q2021

Dec 25, 2021

5 mins read

Share
  • Mail
  • LinkedIn
  • Twitter
  • Copy URL
Read more

Share

Global Market Review

Real estate's recovery may transform into a robust expansion in 2022 because of above-average demand. Cities are seeing signs of improved rental growth, with central business districts and centrally located apartments benefiting from a sharp increase in hiring. Net operating income for retailers is rising as consumers increase spending. Supply growth is set to increase in coming years, although it may trail historical averages. Although the wide gap between the best- and worst-performing segments of the real estate market may persist, the differences are starting to narrow, and location likely will drive the industry's performance once again. Elevated rates of inflation will likely be additional tailwinds for the sector, so REITs may serve as attractive inflation hedges. 

The COVID-19 pandemic severely challenged the global real estate industry during the past year. First, it virtually shut down office culture, socialization, and travel. Then, as the world recovered, global real estate transformed. With different parts of the world experiencing their individual stages of recovery, three distinct trends are driving compelling opportunities for real estate investors: reopening, reflation and recalibration. Those trends are creating tactical opportunities for short-term gains from mispricings or reversion to the mean, as well as longer-duration opportunities from the recalibration of real estate supply to evolving demand. 

Economies have been gradually reopening around the world, although the progress is far from uniform or linear. Virus variants are driving fits and starts in the reopening process, leading to tactical opportunities. The recovery in North America, 2021’s best-performing region, is six to nine months ahead of Europe’s and Asia’s, which is creating short-term opportunities in those regions, with their hard-hit sectors expected to recover in the coming year. The reopening of economies is expected to release pent-up demand in various consumer industries, including travel and lodging. Because COVID-19 vaccinations are progressing at varying speeds around the world, this trend will likely continue for months, if not years. 

Restrictions on mobility together with the shutdown of experiential businesses hurt urban real estate disproportionately. With restrictions easing in major cities globally, we anticipate sharp rebounds in leasing volumes for urban multifamily assets and retail assets that likely will benefit from the return of local residents who left cities during the pandemic. 

Office space is beginning to see rent growth, but valuations remain low. Large capital expenditures to modernize buildings and meet environmental, social and governance requirements will pressure operating income and revenue. The older-adult housing market is recovering rapidly, as many who deferred moving into such facilities are now selling their homes (given the rise in house prices) and shifting to older-adult housing developments. 

Real estate tends to outperform broader equity markets during periods of moderate (2.5–3%) and higher (3–4%) inflation. Historically, real estate has demonstrated strong correlation with inflation, particularly in assets with short-lease durations and strong operating leverages. Shorter-lease-duration assets tend to appreciate the most when reflation takes hold, particularly those seeing strong demand, because it enables lease holders to pass expenses along to their tenants. Residential properties offer inflation protection. These asset classes are poised to benefit from reflation, as improving cost controls and supply/demand imbalances should lead to above-consumer-price-index operating-income growth. U.S. multifamily housing is an attractive area, as it is experiencing a surge in investment activity from private real estate sources. Annual lease durations, together with rising cost controls and technological innovation, make the asset class a strong inflation beneficiary. Replacement-cost increases are leading directly to accelerating market rent growth. Coastal multifamily properties should particularly benefit from a recovery, as occupancy levels rise after reduced move-in activity during the pandemic. 

Technology is profoundly altering the global need for real estate and informing where demand will come from over the long term. Technology has also enabled some REITs to take advantage of their scale and operating histories to incorporate vast volumes of data into various aspects of their businesses. What will follow is a period of consolidation, as some REITs acquire small- to midsize trusts to realize value through efficiency gains. Real estate is also conforming to new regulations and tenant demand for more environmentally friendly or even net zero properties. 

Read more

Author

  • Rick Romano
    Rick Romano

    Head of Global Real Estate Securities

Learn more
Public REIT Securities

Diversified portfolios of publicly traded real estate companies designed to meet a wide range of investor objectives

Learn more

  • About Us

    • Company Overview
    • Leadership
    • Locations
    • Contact
    • Careers
    • Client Portals
  • Investments

    • Overview
    • Real Estate Equity
    • Real Estate Debt
    • Public REIT Securities
    • Defined Contribution
    • Agriculture
    • Private Equity
    • Impact Investing
    • Senior Housing
    • Mexico Industrial
  • Financing Solutions

    • Overview
    • Stabilized
    • Transitional
    • Mezzanine
    • Agency
    • Agriculture
    • Loan Services
  • ESG

    • ESG Overview
    • Environmental
    • Social
    • Governance
  • Insights & News

    • Insights
    • News
PGIM Real Estate Logo
  • Terms & Conditions
  • PGIM Privacy Center
  • Accessibility Help
  • Cookie Preference Center

Disclosure Statement (California)opens in a new window     Disclosure Statement (Japan)       Disclosure Statement (UK)opens in a new window      Form CRS - PGIM, Inc.opens in a new window

For Professional Investors only. All investments involve risk, including the possible loss of capital.

The content and materials presented here are for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect of any products or services to any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. PGIM, Inc., is the principal asset management business of PFI and is a registered investment advisor with the US Securities and Exchange Commission(SEC). Registration with the SEC does not imply a certain level of skill or training.  PGIM is a trading name of PGIM, Inc and its global subsidiaries.

In the United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 193418).  In the European Economic Area (“EEA”), information is issued by PGIM Real Estate Luxembourg S.A. with registered office: 2, boulevard de la Foire, L-1528 Luxembourg. PGIM Real Estate Luxembourg S.A. is authorised and regulated by the Commission de Surveillance du Secteur Financier (the “CSSF”) in Luxembourg (registration number A00001218) and operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses available to PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. These materials are issued by PGIM Limited and/or PGIM Real Estate Luxembourg S.A. to persons who are professional clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II). In Germany, this material is distributed by PGIM Real Estate Germany AG, a regulated entity by the Bundesanstalt für Finanzdienstleistungen (BaFin).

In Japan, investment management services are made available by PGIM Japan, Co. Ltd., ("PGIM Japan"), a registered Financial Instruments Business Operator with the Financial Services Agency of Japan. In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 (paragraph (a) to (i) of the Securities and Futures Ordinance (Cap.571). In Singapore, information is issued by PGIM (Singapore) Pte. Ltd. (“PGIM Singapore”), a Singapore investment manager that is licensed as a capital markets service license holder by the Monetary Authority of Singapore and an exempt financial adviser. These materials are issued by PGIM Singapore for the general information of “institutional investors” pursuant to Section 304 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”) and “accredited investors” and other relevant persons in accordance with the conditions specified in Sections 305 of the SFA. In South Korea, information is issued by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean qualified institutional investors on a cross-border basis.

In Australia, information is issued by PGIM (Australia) Pty Ltd (“PGIM Australia”) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). PGIM Australia is a representative of PGIM Limited, which is exempt from the requirement to hold an Australian Financial Services License under the Australian Corporations Act 2001 in respect of financial services. PGIM Limited is exempt by virtue of its regulation by the Financial Conduct Authority under the laws of the United Kingdom and the application of ASIC Class Order 03/1099. The laws of the United Kingdom differ from Australian laws.

Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. PGIM, the PGIM logo and Rock design are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

The information on this website is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. In making the information available on this website, PGIM, Inc. and its affiliates are not acting as your fiduciary.

©2022 PFI and its related entities.

Links

Links from this website to a non-PGIM website may be provided for the user’s convenience only. PGIM does not control or review these third-party sites nor does the provision of a link imply any endorsement of our association with such non-PGIM sites. Your linking to any websites from this website is at your own risk. To the extent that any information on this website relates to a third party, this information has been provided by that third party and is the sole responsibility of such third party and, as such, PGIM accepts no liability for such information. Subject to the terms of applicable service or other agreements, we will remove any link from this website upon request from the owner of the linked website. 

Links from this website to affiliates are provided for the user’s convenience only. Each affiliate’s website is issued or approved solely by the applicable affiliate and unless stated otherwise on such affiliate’s website, is not issued by PGIM, Ltd. or any other non-U.S. entity. Each affiliate is solely responsible for the content of its respective website. The laws governing any affiliate and its respective websites may differ from the laws governing pgim.com and the relevant website's terms and conditions and policies may differ from those of pgim.com. 

©2022 Prudential Financial, Inc. and its related entities.