PGIM Real Estate puts US investors' international allocation sweet spot at 10-15%

For a decade, US institutions have found domestic real estate good enough that they had little reason to look elsewhere, and their target weights show it: PGIM Real Estate's latest research puts typical domestic allocations at 70-80%, up from 66% in the back half of the last cycle, according to Greg Kane, the firm's managing director and head of European investment research, writing in Real Assets — IPE.

The residual, Kane argues, deserves more thought than it usually gets: allocating about a fifth of a portfolio internationally produces what he describes as strong efficiency gains, with further but more modest improvement arriving between 30% and 40%. The sweet spot he names sits lower, in the 10-15% range, and it is not a call for dozens of positions across dozens of markets.

European residential cash flows, in PGIM's account, are less volatile than US multifamily's because social housing structures and long tenancies soften the repricing American landlords have lived through. Offices in Asia-Pacific and Europe run tighter supply-and-leasing dynamics than much of the US, and regional hospitality is benefiting from rising tourism into constrained supply. Europe's less institutionalised sectors are the third leg: self-storage, at a fraction of US supply per capita, lets a buyer import an operating model that is already mature at home and collect development profit and yield compression as the market catches up.

The country calls follow the same logic: Iberia stands out for real estate's outsized role in economies that remain under-institutionalised; Ireland's living sectors face a shortage Kane treats as genuine rather than cyclical; UK affordable housing is drawing private capital into a niche he says is shielded from broader market caution; and German distress is opening entry points for investors able to pair debt and equity capabilities. Living and logistics appear across nearly every market, while demand-led sectors — self-storage, grocery-anchored retail, premium hospitality — are picked more selectively. Kane adds a debt allocation where liquidity is deepest, in industrial and living assets, as a further lever that does not add equity risk.

One caveat concerns the source: this is one manager's house view, published as commentary, and the source does not break the 70-80% domestic figure down by investor type, mandate or region, so it reads as PGIM's characterisation of the market rather than a survey result. The argument also cuts against the American bid, since Europe's fragmentation — no unified capital market, slower price discovery — is presented as a source of alpha for allocators doing bottom-up, market-by-market work; as this publication has argued, US multifamily is being repriced on rent and basis rather than scarcity, which makes cash-flow stability, rather than price momentum, the residential pitch that travels across the Atlantic.

The German line sits closest to the current cycle: entry points for buyers willing to pair debt and equity, the same bargain patient capital is negotiating on this side of the Atlantic. Kane's closing question for allocators is about the job the international exposure needs to do. The number to watch is whether US domestic targets hold at 70-80% or drift back toward the 66% mark of the last cycle.