Prudential Real Estate Investors

PREI's global Investment Research Team consists of experienced analysts with a broad range of training in areas of finance, real estate, economics and quantitative methods, and access to the best available resources. Team members are located on four continents, providing clients with an international perspective. This depth of knowledge and diversity of experience enables PREI's Investment Research department to support client needs from many perspectives including the US and non-US, public and private, and equity and debt market segments.

The Investment Research department's reports cover a wide range of topics of interest to institutional real estate investors, practitioners and investment professionals. Most reports are available online in pdf format in the research archive. For inquiries, please contact the Investment Research department via e-mail at prei.reports@prudential.com or by phone @ 973.683.1745.

Recent reports from PREI:

US Quarterly Outlook, April 2013 (April 2013). Slow and steady growth in GDP and employment are expected to support occupier demand for commercial real estate, enabling market fundamentals to improve across the board. Income growth should begin to accelerate in the office, industrial and retail sectors, which are in the early stages of recovery. Apartment vacancies are extremely low and occupier demand should remain strong, but rental growth is decelerating as new supply starts to be delivered.
European Quarterly Outlook, April 2013 (April 2013). GDP growth is expected to slowly improve over the course of the year and into 2014, as austerity measures ease, market reforms kick in and global economic activity picks up. With the eurozone expected to remain intact, investors and lenders are set to slowly increase their appetite for real estate. Although the focus is still on core assets in Northern Europe, more investors are expected to move into secondary cities across North Europe and major cities in the eurozone periphery.
Asia-Pacific Quarterly Outlook, April 2013 (April 2013). The Asia-Pacific region is forecast to produce steady growth in the medium term, thanks to the region’s robust fundamentals and resilience in the face of headwinds from the eurozone. Strong consumer confidence -- driven by solid economic performance and the sustained increase in household income -- is boosting spending in China and Southeast Asian countries such as Indonesia, Malaysia and Thailand.
Latin American Quarterly Outlook, April 2013 (April 2013). Latin America’s major economies continue to attract substantial capital inflows, although there are concerns that currency appreciation is hurting competitiveness. Robust economic growth supports occupier demand for commercial space. Prime rents are rising in major property sectors where grade A space is relatively scarce, such as Brazil’s major office and retail markets and Mexico City’s industrial market.
Why Global Real Estate Securities (March 2013). Investors have many reasons to broaden their horizons into global real estate securities. The sheer size and growing importance of emerging markets will produce a host of opportunities outside the US, while diversifying enables investors to gain exposure to the economic drivers in multiple regions and has historically produced superior returns without added risk. What’s more, today’s market looks favorable for commercial real estate. Demand is growing as global economies recover, and the lack of new supply should produce favorable fundamentals.
Global Real Estate Securities Benchmarks: 2013 Update (March 2013). Most market players looking to track the performance of global real estate securities use either the S&P Developed Property Index or the FTSE EPRA/NAREIT Developed Real Estate Index. Although the global results of the two indexes are extremely similar, there are subtle differences that could impact the performance of investors who only operate within the scope of companies covered by one or the other. For example, S&P’s eligibility criteria provides access to a broader range of smaller and potentially faster-growing real estate firms, which could have an impact on results.
Global Real Estate Securities 2012 Market Review & 2013 Global Outlook (February 2013). Globally, real estate securities returned an impressive 28.9% in 2012. US REITs delivered a strong 17.8% return in 2012, but underperformed Asia (43.3%) and Europe (30.7%), which were recovering from a difficult year in 2011. Although exogenous events could adversely affect the economy, we are increasingly optimistic about a moderate global recovery, which is good for real estate. Due to the lag between economic growth and delivery of new supply, we anticipate a multiyear period of earnings and income growth for public companies.
The Case for South East Asia Retail Investment: Structural Opportunity vs. Strategy? (February 2013). Retail sales in the Asia-Pacific region grew to US$3.8 trillion in 2011, up from US$3.2 trillion in 2006 and more than 40% of the global total. The rapid increase is driven by factors that include strong economic growth, maturing markets and favorable demographic trends. This paper examines the structural and cyclical factors that shape retail trends and how the growth will produce select opportunities for investors in South East Asia.
Sizing Up the Emerging Markets: 2012 Update (December 2012). The consumer class in emerging markets -- the portion of the population with the means to use institutional-grade real estate -- is set to grow rapidly in terms of size and economic output over the next decade. In our universe of 24 emerging markets, the consumer class population is projected to grow to 948 million by 2022 from 452 million today, and GDP produced by the class is forecast to rise to $33.8 trillion in 2022 from $10.2 trillion today. The robust growth is almost certain to translate into higher demand for institutional-grade real estate in those countries.
From Bullish to Balanced: A Changing View of the US Apartment Market (July 2012). Apartments have outperformed other commercial real estate segments over the past several years, and there are good reasons to be bullish on the sector’s prospects. Healthy fundamentals have been driven in large part by long-term trends, particularly demographic changes that create demand for apartments and the steep decline in new supply. Although there are reasons for tempering enthusiasm, such as affordability and the start of the development cycle, we believe there will be enough demand to fill new units in the years ahead. We remain optimistic about the sector’s prospects, but at the same time see enough risks to shift to a more balanced view of the future.
The Case for China Retail: Issues and Opportunities (March 2012). Demand for quality retail properties in China is being fueled by factors that include urbanization, economic growth, projected higher personal spending, the expansion of retail chains, greater integration with the world economy and increasing domestic and foreign investments. Although the real estate investment market in China is still in its nascent stages and subject to risks -- among them liquidity, legal and regulatory risks -- China’s retail sector has enormous potential.
A Bird's Eye View of Global Real Estate Markets: 2012 Update (February 2012). Our latest study on the global universe of institutional-grade commercial real estate estimates that the market totaled $26.6 trillion in US dollars in 2011. While the US dominates the current market share and will continue to grow at a healthy pace, the fastest growth will come from the developing countries in the Asia-Pacific region, particularly China and India. Growth will also be relatively high in other developing nations such as Russia and Brazil.
Global Real Estate Securities 2012 Market Outlook (January 2012). Globally, public real estate securities returned -5.6% in 2011 as the turbulence and macro fundamentals exacted their toll on share values. In 2012, the outlook for global real estate securities will be intertwined with the performance of the global economy as well as factors specific to each local market. We believe performance ultimately will turn on the "Five Ds:" Debt, Deleveraging, Dividends, Discounts and Demand and Supply.
Bad Debt Looms Over Hotel Sector, December 2011 (December 2011). The hotel sector is in the beginning stages of a major shake-up that emanates from too much debt being placed on properties at the peak of the last cycle in 2006 and 2007. While the same could be said about the entire market, the disruption in the hotel sector could be greater because lodging loans have (on average) worse credit characteristics than those of other property types. A large portion of hotel loans will need to be recapitalized, although the severity of the problem will depend on whether and how much hotel fundamentals keep improving.
Global Real Estate Securities Benchmarks: A Comparison (July 2011). This report compares the composition, performance and risk-return characteristics of the S&P Developed Property Index and the FTSE EPRA/NAREIT Developed Real Estate Index. Both indexes have grown rapidly over the past decade in line with the real estate securities sector. Globally, they have produced similar returns, but regional performance is more varied due to the different eligibility criteria and geographic composition of the indexes.
Cap Rates and Interest Rates: A Conundrum, Or Not (June 2011). Though it seems counterintuitive, appraisal capitalization rates historically have been fairly resistant to the pressures of rising interest rates. Historical evidence from NCREIF suggests that rising rates are not necessarily an ominous sign for the asset class. Real estate performance is largely determined by capital and space market forces, and barring a contraction in the US economy, space market forces will have a positive effect on property performance over the next several years.
Market Opportunities in Global Real Estate Securities (May 2011). Commercial real estate presents a compelling opportunity for investors today. Not only does the sector provide many long-term investment benefits, but in coming years fundamental factors such as the supply/demand cycle are set to turn positive while demographic forces look to be favorable. In particular, public companies that own and operate real estate are positioned to take advantage by virtue of their ability to raise abundant amounts of low-cost capital in the public debt and equity markets.
A Bird's Eye View of Global Real Estate Markets: 2011 Update (March 2011). This report updates our forecast of the size of commercial real estate markets in Prudential’s global universe of 55 countries, which encompasses $23.9 trillion of institutional-grade commercial real estate, up 7.3% from $22.3 trillion a year ago. In the coming decade, China and the US will produce about half of the global growth of institutional real estate, and distribution of the sector is forecast to move toward the Asia Pacific region.
The Case for Commercial Real Estate (March 2011). Investing in commercial real estate has many benefits for both institutional and individual investors. The sector encompasses a share of the investable universe and provides superior risk-adjusted performance, healthy current income, diversification and a hedge against inflation. And while investing in commercial real estate requires more capital and expertise than most small investors possess, there are many vehicles such as open-ended funds and public REITs through which individuals can access the asset class.
Deleveraging the Commercial Mortgage Market: How Much Further To Go? (January 2011). In the wake of the 2008 banking crisis that followed a period of aggressive lending, the commercial mortgage market is in the midst of a period of deleveraging. To calculate the extent that the volume of total outstanding mortgages will shrink, we created a model that is based on the historical proportion of commercial mortgages as a share of GDP. We found that mortgage volume will drop about 12-14% in absolute terms over the course of the cycle, to just under $3 trillion in 4Q11 from the $3.4 trillion peak in 1Q09.