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The opportunity of EM real estate

Market Commentary

25 October 2019

Lower interest rates in the aftermath of the Global Financial Crisis are increasing the affordability of real estate while rendering conventional liquid fixed income in developed economies (DM) less attractive. Real Estate is therefore becoming an increasingly important allocation in institutional investors’ portfolios. At nearly USD 220 trillion, the global real estate market is the largest market in the world, dwarfing both conventional fixed income and equities. Emerging Markets (EM), which make up about 55% of the global real estate market, is supported by strong fundamental and idiosyncratic drivers. EM real estate offers significant diversification benefits in the context of global real estate portfolios due to intra-EM diversification. This, alongside high real yields, means that EM real estate can have superior investment performance to DM real estate. The main risks associated with EM real estate – transactions and macroeconomic risks – can be mitigated with specialist asset management skill, and diversification.

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