Global Real Estate Outlook: Steering through volatility in the search for value

Interest rate rises and increased uncertainty are putting pressure on asset classes across the board. With bond yields significantly higher, real estate’s risk premium has narrowed, making low property yields more challenging to justify. A price correction across global real estate markets will drive variation in performance of existing portfolios, depending on quality of assets. Increasingly stringent occupier requirements mean buildings without green credentials are at risk of lower occupancy, with ‘brown’ discounts for older property look set to accelerate. Despite the high cost of heavy retrofitting, delaying works could be a false economy. Portfolio allocations are also likely to shift, given that traditional property sectors such as offices are facing structural and cyclical challenges. The living sector looks more resilient as housing is in high need. Helping to bridge the supply gap could therefore mitigate the current upwards pressure on yields through attractive income and growth prospects, while creating a positive social impact. Property revaluations will naturally take time to play out, but as yields reach stabilisation, we believe assets are likely to reflect an attractive long-term value opportunity, with improved performance prospects. With economic headwinds rising, steering through market volatility will require skill and perspective. History shows that it is often in the years after recession that real estate delivers, with the potential to offer the best vintage of investments. -------------- This information reflects M&G’s present opinions reflecting current market conditions. They are subject to change without notice and involve a number of assumptions which may not prove valid. The value of investments can fall as well as rise. The views expressed in this document should not be taken as a recommendation, advice or forecast.