Corporate overview
MetLife Investment Management (MIM) is the institutional asset management business of MetLife, Inc., a publicly traded company (NYSE: MET) that was founded in 1868 and is one of the world’s leading financial services companies with operations in more than 40 markets. As of 30 June 2023, MIM has $587.5bn of total assets under management. MIM’s primary lines of business include public fixed income ($313.9bn), real estate ($107.3bn) and private capital ($128.8bn). We offer investment strategies globally across these asset classes, which are available through separate accounts and proprietary fund vehicle options. With over 150 years of disciplined risk-management experience, we apply deep expertise in skillfully navigating markets with the goal of delivering strong, risk-adjusted returns. In our client-centric culture, teams of investment professionals are dedicated to creating tailored solutions designed to help our clients meet their unique needs and objectives.
Sector forecasts
INDUSTRIAL: Little has changed in our positive view of industrial fundamentals. While we do not expect the parabolic growth of 2022 to be repeated, with major logistics providers doubling in size during that time, we expect low vacancies and the continued push for faster delivery speeds to continue to generate healthy rent growth, especially for infill submarkets with high supply barriers. Despite the economic headwinds, we are currently forecasting 6.1% US national average rent growth in 2023 and 3.7% rent growth in 2024.
We believe onshoring and nearshoring could provide an economic tailwind to several market areas, and the industrial sector will be a primary beneficiary of that trend. US markets like Louisville, Memphis, Indianapolis, Columbus and Kansas City may not be on the radar of many institutional investors today, but we believe they deserve an overweight, as do industrial facilities in ports such as Savannah and Baltimore.
HOTEL: Hotel performance has, historically, almost entirely been explained by two factors: office-using employment growth and construction completions. In the post-COVID-19 world, however, hotel performance has been determined by the path of the pandemic and recovery, as well as inflation trends.
In addition to higher inflation, the hotel sector is benefiting from a recovery in business travel. This trend is already being reflected in booking data, with weekday performance (indicative of business travel) outpacing weekend performance (indicative of leisure travel). We believe this is positive for many international/business-oriented destination markets like San Francisco and Baltimore that have been shunned by hotel investors over the past several years.
RESIDENTIAL: Household formation is a primary driver of rental demand. While household formation is driven by demographics and straightforward to predict over 10-plus year periods, it can be volatile from one year to the next depending on economic conditions. The pandemic also contributed to this volatility and made household growth contract and expand much more than is typical.
Due to a softening economic outlook and a worsening relationship between rent levels and income levels, we expect household formation to be modest in the short term. If household formation slows or stalls, we think some US markets with elevated supply pipelines could be at risk of rising vacancies and weaker-than-expected rent growth going into 2024. In recent years, demographic trends have generally pointed to multifamily investment opportunities in US growth markets such as Austin, Phoenix and Nashville.
RETAIL: As a result of healthy fundamentals, retail asset prices have largely been stable over the past year, with the rise in interest rates being offset by the rise in property income growth. Given these positive capital markets and fundamentals traits, and little to no new construction in most markets, we believe retail is offering an attractive investment profile today, and one that many investors are not considering after nearly 20 years of underperformance as a result of e-commerce growth.
One area of caution within retail is, counterintuitively, the grocery segment. Grocery-anchored retail has been one of the lowest-risk categories within the broader real estate sector for decades and is priced accordingly. We do not believe investors are appropriately attributing the risk of consolidation, downsizing of footprints or e-grocery in underwriting assumptions.
As such, we recommend debt and equity investors focus on non-grocery retail segments including power centres leased to creditworthy tenants that have e-commerce resiliency, neighbourhood centres, and single-tenant, net lease retail, such as quick-service restaurants, dollar/convenience and home improvement stores. Our overarching retail strategy remains a focus on e-commerce resiliency and experience-based spending.
OTHER: The energy sector’s transition to renewable energy is increasingly relevant to the real estate industry as asset managers are now better able to evaluate and present investors with practical options to achieve net-zero targets, prioritise resilience and implement various types of risk mitigation. The implications of a greening US energy grid are widespread and present a myriad of strengths, weaknesses, opportunities and threats that property owners, utility providers, governments and businesses will need to navigate. Timing is critical as the real estate industry will need to align its decarbonisation plans with the pace of available renewables. If building electrification outpaces the supply of green power, then the best intentions may lead to an inefficient influx of brown power. Effectively timing implementation strategies, all while navigating changing reporting methodologies, will require a holistic view of the interconnected industries, markets and policies involved to inform investment and decarbonisation decisions.
Investment principles & strategy
Our Commercial Mortgage Loan strategy seeks to deliver attractive yields, while maintaining low loss rates. Our Real Estate Equity strategy seeks to achieve growing current income and capital appreciation by investing in well-positioned properties in markets with favourable demographic and economic drivers.
Strategic corporate development
MetLife Investment Management’s corporate strategy is driven by taking our differentiating factors as an asset manager (specifically, deep fixed income, real estate and private capital expertise together with risk management capabilities) to create value for clients. Our continued success is dependent upon our client-first culture that drives us to act with urgency for our clients and prospects, eliminating growth-inhibiting policies and processes where we can, and escalating quickly when we see roadblocks. It also drives us to provide clients with transparency regarding our investment decisions related to their portfolio and access to our investment experts.
