Property vs equity: ‘the lost decade is over’
Real estate is on the edge of a positive turnaround, while an upward trend across the stock markets globally is exceeding expectations, according to DWS’s Market Outlook 2025.
The property market has been historically considered as a safe haven, thanks to its stability and resilience in the face of wider macroeconomic headwinds. But no one would have expected such a good performance from the capital markets in the wake of a global pandemic, major disruptions to supply chains, the outbreak of war in Europe and the escalation of conflicts in the Middle East.
As a result, experts from DWS have said diversifying is the key to success in the current investment environment.
Real estate is on the edge of a positive turnaround, while an upward trend across the stock markets globally is exceeding expectations, according to DWS’s Market Outlook 2025.
The property market has been historically considered as a safe haven, thanks to its stability and resilience in the face of wider macroeconomic headwinds. But no one would have expected such a good performance from the capital markets in the wake of a global pandemic, major disruptions to supply chains, the outbreak of war in Europe and the escalation of conflicts in the Middle East.
As a result, experts from DWS have said diversifying is the key to success in the current investment environment.
Vincenzo Vedda, chief investment officer at DWS, said: “I think the good news is that the lost decade is over. However, the risk of negative surprises has increased. If the assumptions of a soft landing and a significant increase in corporate earnings – especially in the US – prove to be wrong, there could be significant negative surprises.”
DWS highlighted a marked increase in US interest rates to 5%, an escalation of the trade war and geopolitical risks as the main potential downturns to the overall positive outlook for the equities markets globally.
Attractive infrastructure
After two tough years in the real estate market, DWS expects a turnaround in the sector.
Ulrich von Creytz, chief investment officer for real estate Europe at DWS, said: “We have recently observed a recovery in core real estate, particularly in the residential, logistics and high-quality office sectors.”
However, the market is divided, said DWS. While demand for high-quality properties has been on the rise since the second quarter of 2024, the lower-quality properties are yet to pick up on this trend.
Elsewhere, DWS has favoured data centres investment. Von Creytz said: “Do data centres belong to infrastructure or real estate? Real estate usually provides the shell, which is only one-tenth of the whole value. So, in our organisation, it sits with infrastructure. Nevertheless, it is a huge opportunity, and we are seeing a huge growth there on the data centre side.”
More broadly, all investments in Europe across infrastructure have been marked as “attractive” by DWS as it expects capital requirements in the sector to total €14tn (£11.6tn) by 2040.
Von Creytz said: “This offers particularly attractive investment opportunities for private infrastructure debt investments, as governments will not be able to raise these volumes on their own.”
In the area of real estate loans, DWS predicts a growing financing gap as banks tighten their portfolios due to higher risk provisions and increased regulation. This is creating more opportunities and attractive yield expectations for alternative lenders.
“We expect whole loan strategies, where a lender provides the entire loan amount, to play an increasingly important role, replacing the traditional combination of senior bank loans and equity financing,” said von Creytz.
High returns at high risk
DWS expects global equities to bring high returns for investors in 2025, building on its strong performance so far this year, with 2024 likely to see an increase of more than 20%.
The move comes as the long-lasting global downward trend across equity markets starts to fade away, with small-to mid-cap stocks in particular set to become beneficiaries of this.
Marcus Poppe, co-head for European equities at DWS, expects a 9% return for the MSCI All Countries World Index. He said: “The situation for European companies could take a turn for the better in 2025.”
In the US, the value of equities is likely to remain high, justified by earnings momentum and long lasting US economic expansion.
David Bianco, chief investment officer for US at DWS, said: “Higher profits, but also higher risks. Earnings growth for S&P 500 companies is expected to be in the range of 10-15% in 2025. Technology stocks are likely to remain among the price drivers, but financial stocks, energy intensive companies and utilities also have good prospects.”
In Asia-Pacific, DWS favours bonds with neutral outlook for equities. The asset manager sees opportunities in broader diversification, which reduces the weighting of Chinese bonds and takes into account growth drivers such as Japan, India and Indonesia.
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