Global Real Assets Outlook 2020

As we think about the industry narrative for 2020, we believe three key themes will dominate the agenda: strong relative value, a slowing cycle and significant underlying change.

Examining key themes in 2020

Real Assets are shaped by the megatrends of demographics, technology, the drive for sustainability and shifts in government policy.

With interest rates near their lower bound real assets continue to offer good relative value and attract significant capital flows. Fundamentals remain sound, though return expectations have moderated.

Yet, beneath this relatively calm exterior, deeper shifts continue to shape the future in ways that some long-duration real estate and infrastructure assets are already anticipating. Most notably, climate change and the intensifying push for sustainability and the transformative impact of digital technology are driving dispersion between and within asset classes.

Download full 2020 outlook

1. Cycling slowing

We believe we’re in a slow-moving cycle, an even lower for even longer interest rate environment. In this “goldilocks” environment of moderate growth but low rates, real assets fundamentals remain sound. Especially since new construction remains in check in a vast majority of global real estate and infrastructure markets, with a combination of disciplined lending markets and structural barriers such as higher construction costs and policy uncertainties. As a result of this relative demand-supply balance, and in line with the last few years, income growth has driven healthy and stable real assets returns.

2. Relatively attractive

Real assets serve as the building blocks of a changing world, impacted by change as technological advances accelerate, urbanization continues, sustainability considerations intensify, and global population grows and ages. Risk adjusted returns from real assets remain attractive relative to other asset classes amidst a stable ‘lower for longer’ interest rate environment and a backdrop of negative policy rates in several of the world's major economies.

3. Changing with the future

Transformative trends are supporting the increasing demand for the asset class as demographic shifts are increasing pension savings, and retirement rates drive the demand for income producing assets. Sustainability considerations are in focus. ESG integration efforts in operational processes are increasing rapidly and this year has marked a new high. Sustainability considerations could also put limits on the expansion of e-commerce, since the delivery of parcels and food to homes conflicts with the increasingly ESG conscious millennial often the target demographic for these services.

Changing with the future: The dimensions of secular change

Implications for investors

• Creativity with discipline. Yesterday’s strategies will likely not work tomorrow as a result of the interaction of the above themes. The ability to develop creative new strategies is critical however discipline remains critical across all strategies.
• A diverse world of opportunities. Markets are moving through different cyclical phases, reflecting local trends in demand, supply, policy and political dynamics. This serves to highlight the importance of active market selection, especially where enabled by our proprietary global Target Market Analysis framework.
• The grass is ever greener. An integrated ‘real assets’ approach offers a unique platform for creating value in both real estate and infrastructure, at a time when ESG considerations are elevated to the top of the investor and cooperate agenda.
• Technological change is accelerating. Investors need to have a proper understanding of the role technology will play in portfolio resiliency. Beyond a disruptor, technology is also an enabler.
• Portfolio context matters. Between global trade uncertainties, Brexit, the US presidential election, and regulatory changes in local markets, there are many potential binary outcomes. It is impossible to predict all of the outcomes, thus diversification in the context of the overall portfolio performance is paramount.