Global investors in commercial real estate, for years, have focused on the US and would only invest in Europe sparingly, and they would do so to either diversify their portfolio or gain from outperformance, says PineBridge Investments. However, the asset manager believes that these investors should deploy more capital in Europe. This is because of high interest rates and supply-demand imbalance in the US office market, coupled with the swift repricing of CREs in Europe. 

“None of this is to say that the European CRE market has had an easy time of it over the past 12 months…But while the pain has been severe, it has at least been fast..,” said the asset manager.

PineBridge Investments describes the US commercial real estate sector as ‘harder to read’ because of its current dissociative state. The asset manager goes on to elaborate on the disconnect between the country’s leading index for REITs and private funds. 

Marc Mogull, Chairman and CIO at PineBridge Benson Elliot, warns investors about potential weaknesses in the US commercial mortgage-backed securities markets. Furthermore, he suggests that the most compelling reasons to reconsider the relative advantages of the US and European CRE markets are structural rather than cyclical.

As per Mogull, for ‘relevant’ commercial real estate assets that have value today, the European market offers segments where supply limits can still produce very advantageous supply-demand dynamics.

“Of course, no matter how well the European CRE market or parts of it do relative to the US, it won’t amount to much for an overseas investor in currency-adjusted terms if the same general pattern of euro weakness and dollar appreciation of the last 15 years persists for the next 15,” opines the asset manager, but also talks about an alternative scenario.

So why should a US-centric commercial real estate investor consider Europe? PineBridge mentions a few reasons such as a fallout from the end of the era of easy money, to access a stable market, or to avoid missing out on a possible currency inflection point.

View the complete insight here.