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Real Assets

Unlocking Opportunities in Private Real EstateUnlockingOpportunitiesinPrivateRealEstate

Apr 3, 2025

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The real estate market recovery is gaining momentum, marked by significant improvement from a year ago. Following a period of constrained deal flow and heightened volatility, we’re now seeing a surge in activity and a strong pipeline of attractive investment opportunities. PGIM Real Estate’s Brandon Short discusses market dynamics and investment opportunities in private real estate, and why the current backdrop may present an attractive entry point for investors.

MARKET REVIEW AND OUTLOOK
 

  • Attractive entry point. Real estate values have bottomed. Real estate return expectations now exceed returns from fixed-income alternatives. Debt remains neutral to accretive for returns, driving increased deal flow.  Most sectors are pricing below replacement cost creating an opportunity to capitalise on strong risk-adjusted returns.
     
  • Fiscal policy shifts on the horizon. Potential fiscal policy changes such as tariffs and immigration reform increase risk of higher inflation and interest rates. However, this risk is offset by measures like expanded tax cuts and the JOBS Act, supporting GDP growth. Given this backdrop, we are raising income growth expectations across nearly all asset classes.
     
  • Historical trends signal a rebound. Historically, real estate cycles have experienced prolonged recovery periods following major disruptions such as the global financial crisis. After seven negative quarters, real estate returns rebounded in the third quarter, with momentum continuing to strengthen in the fourth quarter. This marks an encouraging sign of a sustained recovery ahead.
     

STRUCTURAL INVESTMENT OPPORTUNITIES
 

  • Constrained housing supply. The U.S. faces a long-term housing shortage, with a projected annual deficit of 3.3 million homes over the next decade. Limited new construction, driven by high interest rates, has worsened the crisis. High mortgage rates further restrict homeownership, fueling demand for rental housing and creating strong momentum across the rental market.
     
  • Focus on necessity-based retail. Necessity-based retail has maintained a much higher occupancy than discretionary retail, such as malls. Population migration to the suburbs will further drive demand for neighborhood grocery-anchored retail. Retail remains attractively priced and offers enhanced risk-adjusted returns.
     
  • Expansion of e-commerce. Technological advancements are driving demand in e-commerce with consumers becoming increasingly reliant on online purchases. As a result, the industrial sector has been the direct beneficiary of large e-retailers focusing on same-day delivery with growing demand for smaller infill last-mile warehouses.

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References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in the portfolio at the time of publication and, if such securities are held, no representation is being made that such securities will continue to be held.

The views expressed herein are those of PGIM investment professionals at the time the comments were made, may not be reflective of their current opinions, and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither PFI, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.

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