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Economic and Market Commentary

Tap into Real Estate Opportunities in Data Centers, Multi-Family and Logistics Areas

Watch our real estate expert discuss where investors may find compelling opportunities – amid the downturn – to pursue attractive returns from debt and equity investments across public and private markets.

Text on screen: PIMCO

Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Text on screen: Megan Walters, Global Head of Research at PIMCO Prime Real Estate

Megan Walters: The foundations of the global commercial real estate market are shifting. A confluence of factors, including the sharpest rise in interest rates for more than 40 years, recessive economies and geopolitical uncertainty

Images on screen: Commercial office building exterior and interiors

we believe will see the largest downturn in commercial real estate since the global financial crisis 15 years ago.

For investors, this may seem daunting and the outlook challenging, which is why we focused on the topic during our May 2023 Global Real Estate Forum.

Images on screen: PIMCO forum room

We discussed real estate across all four quadrants. We identified the opportunities and the risks that will arise across public and private markets in both, debt and equity. Commercial real estate is far from monolithic sectors, such as multifamily, housing offices and retail have reacted in materially different ways. A combination of land use restrictions and high construction costs will reduce supply more than in any previous cycle, underpinning real estate values over the long term.

Navigating this landscape demands a differentiated approach. Secular trends, including demographics, digitization and decarbonization, will play out differently across regions, underscoring the need for granular understanding of local market dynamics.

Text on screen: We see near-term potential in real estate debt,

Images on screen: Exterior office buildings

Real estate debt has been in the spotlight. In our view, we see unprecedented potential in debt in the near term. We anticipate that reduced liquidity pressure on fundamentals and geopolitical tensions will cause short to medium term distress. This is why we believe lending has emerged as the most attractive avenue of investment from relative value perspective.

Investors can benefit from high quality assets with lower loan-to-value ratios and attractive spreads. Commercial mortgage-backed securities, whilst negatively perceived by some, may in fact offer high yields at significant discounts. We see potential in commercial real estate lending, loan portfolio sales, non-performing loans and rescue capital.

This includes newly originated debt hitting the market as many lenders retreat to the sidelines.                    

Text on screen: Looming $1.5 trillion wall of loan maturities through 2025

Images on screen: Exterior office buildings

Distressed public and private debt will be part of a wave of real estate loans maturing through 2025, including at least 1.5 trillion US dollars worth in the US alone. Private credit and special situations will gain prominence and distressed banking sectors represent opportunities to seize market share from non-bank lenders.

When we think about individual sectors and where the opportunities are for long-term growth and value for investors, we've looked at each of the regions and discussed traditional sectors like office and emerging sectors such as data centers and how these are impacted by trends.

These include longer-term secular trends such as society and demographics, decarbonization and sustainability, and digital, plus the shorter cyclical issues like political change and financial market dislocation.

We anticipate multifamily housing as an investment class will reap the benefits of longer-term trends, such as urbanization, the growing rate of household formation and rising home ownership costs.

Text on screen: Multifamily, Debt: Development and value add projects

Images on screen: Apartment buildings and townhouses

With banks sidelined, we see attractive debt investment lending opportunities for development and value add projects and on the

Text on screen: Multifamily, Equity: Newer properties in select urban gateway markets

Images on screen: Apartment buildings and townhouse

equity side, we see potential in newer properties in select urban gateway markets at less expensive entry points.

Text on screen: Logistics, Industrial storage and distribution facilities

Images on screen: Storage and distribution facilities

In the logistics market, we've seen e-commerce grow and this will continue to drive demand for industrial storage and distribution assets over the secular horizon.

Capital values for logistics facilities have declined across mature markets, especially in the U.S. and northern Europe, but we expect the sector to benefit as investment flows shift from office and retail to logistics supported by low vacancy rates and rent growth.

Growth in demand for datacenter capacity is among the most powerful and visible secular trends in the global economy. Demand has mushroomed with continued digitization of economies.

Digital sovereignty regulations in Europe are driving demand for localized capacity. We see growing appetite from infrastructure investors.

FULL PAGE GRAPHIC: TITLE –European data centre focus markets. The graphic shows a map of Tier 2, and Tier 3 Data Centre Markets:  Tier 2, shown in dark blue dots, includes Berlin, Madrid, Milan, Stockholm, Zurich, Copenhagen, Oslo, and Warsaw; and Tier 3, shown in light blue dots, includes Athens, Sofia, Budapest, Bucharest, Helsinki, Barcelona, Lisbon, Zagreb, Prague, and Rome.

We recommend a focus on tier two and tier three markets in Europe. And we also see good tactical investment opportunities in public equity markets in the US, where REITs lost about a quarter of their value in 2022, creating pricing discrepancies.

Whether we live in the US, Europe or Asia Pacific, the past few years have seen us all experience unprecedented challenges which have influenced how buildings are used.       

FULL PAGE GRAPHIC TITLE – Seeking relative value across four quadrants of global commercial real estate investing. The graphic shows the global real estate debt and equity markets, both public and private where PIMCO seeks relative value opportunities. The upper left quadrant shows Public debt, where PIMCO capitalizes on historically wide spreads and impaired liquidity. The lower left quadrant shows Private debt, where PIMCO takes advantage of motivated sales of discounted debt and rescue financing opportunities. The upper right quadrant shows Public equity (Real Estate Investment Trusts, or REITs) where PIMCO exploits pricing discrepancies via tactical investments. The lower right quadrant shows Private equity, where PIMCO focuses on sectors with secular tailwinds, including logistics, residential, alternatives, and select office and retail properties.

But real estate is a broad sector where investors may benefit from looking at both secular and cyclical trends across public private markets, for both debt and equity.

We see the greatest opportunities in the multifamily residential logistics and data center sectors and believe that global platforms are best positioned to make tactical trades and exploit pricing discrepancies between public and private markets.

Images on screen: PIMCO trade floor

In essence, we believe investors should take a broad approach to debt, but go narrow and deep on equity.

Their focus should be on high conviction tactical deployment into stressed and deeply discounted assets that are facing immediate liquidity pressures.

Text on screen: For more insights and information, visit pimco.com

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About PIMCO Prime Real Estate

A leading global real estate investor and manager, PIMCO Prime Real Estate (formerly Allianz Real Estate) is a PIMCO company and part of the PIMCO real estate platform, focusing on the Core and Core+ segments of the market and managing the Allianz group’s $97B+ real estate mandate. PIMCO’s real estate platform is one of the largest and most diversified in the world, with over $190B(1) in assets and a broad set of solutions that leverage decades of

expertise across public and private equity and debt markets.


As of December 2022. All figures in USD. (1)AUM includes $101.5B in estimated gross assets managed by PIMCO Prime Real Estate, which includes PIMCO Prime Real Estate GmbH, PIMCO Prime Real Estate LLC, and their subsidiaries and affiliates. PIMCO Prime Real Estate LLC investment professionals provide investment management and other services as dual personnel through Pacific Investment Management Company LLC. PIMCO Prime Real Estate GmbH operates separately from PIMCO.

All investments contain risk and may lose value. Investments in residential/commercial mortgage loans and commercial real estate debt are subject to risks that include prepayment, delinquency, foreclosure, risks of loss, servicing risks and adverse regulatory developments, which risks may be heightened in the case of non-performing loans. The value of real estate and portfolios that invest in real estate may fluctuate due to: losses from casualty or condemnation, changes in local and general economic conditions, supply and demand, interest rates, property tax rates, regulatory limitations on rents, zoning laws, and operating expenses. Investments in mortgage and asset-backed securities are highly complex instruments that may be sensitive to changes in interest rates and subject to early repayment risk. Private credit involves an investment in non-publically traded securities which may be subject to illiquidity risk.  Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.

Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.

This material contains the current opinions of the manager and such opinions are subject to change without notice.  This material is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517, 11 Baker Street, London W1U 3AH, United Kingdom) is authorised and regulated by the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. |  PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963, Corso Vittorio Emanuele II, 37/Piano 5, 20122 Milano, Italy), PIMCO Europe GmbH Irish Branch (Company No. 909462, 57B Harcourt Street Dublin D02 F721, Ireland), PIMCO Europe GmbH UK Branch (Company No. FC037712, 11 Baker Street, London W1U 3AH, UK), PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E, Paseo de la Castellana 43, Oficina 05-111, 28046 Madrid, Spain) and PIMCO Europe GmbH French Branch (Company No. 918745621 R.C.S. Paris, 50–52 Boulevard Haussmann, 75009 Paris, France) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG). The Italian Branch, Irish Branch, UK Branch, Spanish Branch and French Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) (Giovanni Battista Martini, 3 - 00198 Rome) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland (New Wapping Street, North Wall Quay, Dublin 1 D01 F7X3) in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN); (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) (Edison, 4, 28006 Madrid) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively and (5) French Branch: ACPR/Banque de France (4 Place de Budapest, CS 92459, 75436 Paris Cedex 09) in accordance with Art. 35 of Directive 2014/65/EU on markets in financial instruments and under the surveillance of ACPR and AMF. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-, Brandschenkestrasse 41 Zurich 8002, Switzerland). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited. Office address: Suite 7204, Shanghai Tower, 479 Lujiazui Ring Road, Pudong, Shanghai 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other). | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. 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Watch our real estate expert discuss where investors may find compelling opportunities – amid the downturn – to pursue attractive returns from debt and equity investments across public and private markets.

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