The global real estate environment faces a number of challenges, from central bank monetary policies affecting lending to the geopolitical situation and investment pressures in response to climate change. All of this influences property prices across the various real estate segments. So, where should we invest now and in the future? Where are the opportunities? And what are the risks?
The main drivers of global real estate supply and demand
As in other areas, the real estate market faces a number of challenges, but it is also full of opportunities. For those with capital and experience, the current environment, according to experts, offers fertile ground for investment. Sectors such as data centers and logistics, supported by long-term trends in digitalization and e-commerce, for example, offer particularly attractive prospects.
Navigating these turbulent waters will require resilience and adaptability. It will be crucial to be able to identify and exploit hidden opportunities in an environment of market volatility. With a focus on alternative assets, and with an eye on digitalisation, decarbonisation and demographic shifts, investors in commercial real estate will be able to not only weather the current upheaval, but thrive. Pimco’s experts look at the top sectors to invest in.
Top sectors to invest in real estate
Multifamily
The global outlook for multifamily is generally positive, with demand “structurally robust”.
In Europe, rents are rising steadily, with no signs of slowing down. Supply is constrained, exacerbated by high development costs and tighter environmental regulations, while demand is growing and strengthening as new households are formed and people move to major metropolitan areas.
In the Asia-Pacific region, prices and rents are strengthening amid moderate supply shortages. Rising house prices and young people moving to cities are fuelling demand for rental properties. Demographic shifts, such as the rising age at which families start to form and the rise of singles, are reinforcing the trend towards longer leases. In addition, increased interest in sharing and communal living, as well as demand for service availability, have driven the growth of residential and coliving solutions.
Offices
The outlook for the office segment remains challenging globally: demand is limited and market equilibrium pricing is still difficult to achieve – with valuations still under pressure in a context of declining office use. The share of offices in institutional commercial real estate portfolios has fallen from 35% in 2022 to 29% today, and further declines are likely. However, the outlook varies by region.
In Europe, there is a strong demand for high-quality structures that adopt green solutions and are located in central areas of major urban centres. Teleworking is a trend, but it has not taken hold in some parts of Europe, due to the trend towards smaller homes and an efficient public transport network that is used to get to work. However, leases tend to be long-term, as the diversity of languages, currencies and regulatory frameworks in different countries complicates business transfers. Above all, energy regulations are likely to drastically reduce the existing stock, as many properties will struggle to meet increasingly stringent European requirements on this front.
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Source: Idealista
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