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CONTRIBUTORS

Indraneel Karlekar, Ph.D

Global Head of Research and Strategy, Clarion Partners

Pedro Nino

Head of Industrial Research and Strategy
Clarion Partners

Preview

Commercial real estate demand and performance are driven by cyclical and structural factors. Cyclical factors, such as interest rates, consumer spending and employment, vary with economic cycles. Structural factors have a lasting impact on economic trends and offer real estate investors long-term opportunities for growth. Cyclical factors are more difficult to foresee and plan for; however structural factors, given their longer time frames and more observable patterns, can help investors make key strategic decisions.

In this paper, Clarion Partners has identified demographics, innovation, globalization patterns, and housing as key themes that can help build resilient long-term real estate portfolios.

  1. Demographics: a fundamental driver for real estate.
  2. Housing: a structural deficit creates long-term opportunities.
  3. Innovation: the new landscape of growth.
  4. Globalization: shifting patterns suggest a broader opportunity for real estate.
  5. Resiliency: building durable, long-term real estate portfolios.

These themes are powerful long-term catalysts for real estate demand and can offer investors a multitude of opportunities across different risk and return horizons. Importantly, we believe these themes harness some of the fundamental drivers of economic activity and will remain immutable as demand drivers for decades.

WHAT ARE THE RISKS?

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Equity securities are subject to price fluctuation and possible loss of principal.

Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Risks of investing in real estate investments include but are not limited to fluctuations in lease occupancy rates and operating expenses, variations in rental schedules, which in turn may be adversely affected by local, state, national or international economic conditions. Such conditions may be impacted by the supply and demand for real estate properties, zoning laws, rent control laws, real property taxes, the availability and costs of financing, and environmental laws. Furthermore, investments in real estate are also impacted by market disruptions caused by regional concerns, political upheaval, sovereign debt crises, and uninsured losses (generally from catastrophic events such as earthquakes, floods and wars). Investments in real estate related securities, such as asset-backed or mortgage-backed securities are subject to prepayment and extension risks.

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