A defense’s mantra: protect against the big play. In portfolio diversification, that means guarding against downside risk. Real estate is an asset class that may insulate portfolios against traditional market risks. Yet, in today’s environment, you need an even stronger defense led by true real estate markets.
For illustrative purposes only.
The real estate cycle has matured, yet attractive opportunities still exist. When devising your strategy, it is important to recognize which headwinds to avoid and how to adjust.
Core markets are a good barometer of the state of play in real estate markets. Manhattan alone has 29.2 million square feet of office real estate in its supply pipeline.
Despite a growing economy, Manhattan leasing spreads are falling. Why? Oversupply.
After a period of little supply, available and leased new construction is projected to climb in Washington, D.C.
Asking rents are already dropping … and could fall further with increased new supply coming online.
Defensively positioning your real estate strategy does not eliminate equity investment opportunities. Rather than relying on organic rent growth, however, look to value-add and non-core strategies executed by strong management teams.
Potential play: consider the evolution of the student housing market.
Historically, property values declined as rates rose.
Potential play: Focus on credit investments like commercial mortgage REITs. They sit higher in the capital structure and may offer a better risk premium than equity investments in this late-cycle environment.DOWNLOAD WHITE PAPER +