Last week, we published our mid-year outlook, it is available here. For real assets, there are three themes:
1. Interest rates will remain higher for longer due to strong near-term growth, deglobalization, the energy transition, increased defense spending, rising Treasury issuance, and US fiscal deficits.
2. Office remains particularly weak for a variety of reasons, including work from home and higher interest rates, but other real asset sectors are showing resiliency. Secular growth trends continue to persist for industrial, multifamily, as well as specialty areas such as data centers, cold storage, self-storage, and student housing.
3. The opportunity remains more compelling towards real estate debt than equity on a risk-adjusted basis in the current cycle. Real estate credit can offer a more attractive proposition due to high base interest rates, widening spreads, more protective loan structures, as well as expectations of higher-for-longer rates.
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