Global real estate market update - Q3 2019 outlook - Nuveen
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Global real estate market update Q3 2019 outlook THIS IS AN OPINION PIECE. PLEASE REFER TO DISCLOSURES FOR IMPORTANT INFORMATION.
Global real estate outlook
Nuveen Real Estate is a global investment manager specializing in real estate equity and
debt investment worldwide with over 550 professionals and 80 years of experience.
Real estate market backdrop
Industrial/ Residential
Overall Retail Logistics RE /Multifamily Office RE Debt
U.S. ● ● ● ● ● ●
• The outlook for global growth has deteriorated, reflecting heightened risk of
a trade and technology war between the U.S. and China and U.S. tariff Canada ● ● ● ● ● ●
threats on other major economies.
U.K. ● ● ● ● ● ●
• The weaker global economy should steer central banks toward a more
accommodative monetary policy stance in the coming months, supporting France ● ● ● ● ● ●
real estate pricing.
Germany ● ● ● ● ● ●
• Domestic economic resilience, especially buoyant labor markets and rising
wage growth, will support real estate market fundamentals in the near Australia ● ● ● ● ● ●
future.
China ● ● ● ● ● ●
• Demand is particularly strong for high-tech sustainable buildings;
particularly those with plentiful flexible and collaborative office space and Japan ● ● ● ● ● ●
with good amenities.
Singapore ● ● ● ● ● ●
• Emerging sectors, such as data centers, purpose-built student housing and
manufactured housing present opportunities for better performance. South Korea ● ● ● ● ● ●
● Negative ● Neutral ● Positive
Source: Nuveen Real Estate, June 2019
Global real estate market update 2North American real estate
Global real estate market update 3Market view
Values are steady, but transaction volumes are lower
Fig. 1: Property prices by property types 1 Fig. 2: U.S. total transaction volume as of Q1 2019 2
YoY ending in May 2019 QoQ ending in May 2019
10% Entity Portfolio Individual
700
5% 600
500
0% 400
Billions
300
-5%
200
100
-10%
Mall Strip Office Core Apartment Industrial 0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Q1 2019
Center Sector*
*Core Sector consists of mall, strip center, office, apartment and industrial categories
According to the Green Street Advisors’ Commercial Property Price Index, property values rose 1.6% in May 2019 relative to one year ago.
Among the main property types, the industrial sector saw the strongest price appreciation, mall prices fell 5.0% during the last year and
are down nearly 20% from their January 2017 peak.1 We expect U.S. real estate values to remain steady through the remainder of this real
estate cycle.
U.S. transaction volumes fell 11.3% in the first four months of 2019 relative to the same period one year ago. Transaction volumes are
falling for two reasons: falling cross-border capital into the U.S. and investor uncertainty around interest rates and the economic outlook.
During the first quarter of 2019 relative to the same period one year ago, cross-border transaction volumes fell by half. Entity-level
transaction volumes plummeted in the first few months of 2019 relative to 2018 given the lack of cross border transaction activity.
Source:1 Green Street Advisors, Q2 2019; 2 Real Capital Analytics, Q1 2019
Global real estate market update 4Focus on housing
Markets at risk of oversupply
A number of U.S. apartment markets will Fig.3: Opportunities and risks in housing
experience favorable supply and demand
conditions in the next three years. Greenville,
Nashville and Charlotte may face supply Markets with potential Markets with potential future
shortages in the next several years. At the other Future oversupply pressures1 supply shortages
end of the spectrum, Jacksonville, Richmond,
Louisville and Omaha could experience 0% 1% 2% 3% -3.0% -1.0% 1.0% 3.0%
oversupply pressures and weak rental growth.
Jacksonville Tucson
New regulations are shaping housing policies Richmond Raleigh
across many U.S. apartment markets. In New Louisville Boston
Omaha
York, historically significant tenant protection Lexington
Long Island
regulations were recently signed into law. These Colorado…
Tampa
regulations are likely to remove shadow supply Oakland San Jose
from rent-regulated apartments becoming Minneapolis Orange County
market-rate, and are likely to discourage Fort… Dallas
developers and landlords from investing in Fort Worth Baltimore
housing in the future. Sacramento Greensboro
Newark Honolulu
The rent regulations are likely to limit the long- Atlanta Las Vegas
run supply of market-rate housing and slow the Riverside Seattle
growth of affordable housing stock. The risks to Miami
Phoenix
asset values and operating fundamentals could Kansas City
Ventura Houston
disproportionally affect lower-quality West Palm Beach
Philadelphia
apartments in the short run since these buildings Birmingham Charlotte
are more likely to fall under initial changes in Providence Nashville
regulations. The longer-term consequences of the Los Angeles Greenville
regulations might affect a broader set of
landlords.2
Annual Excess Supply Additions (% of Stock) 3-Yr Rent Growth
1 CBRE EA, Q1 2019
2 Green Street Advisors, Q1 2019
Excess supply additions are calculated as the difference between the last 3-years and forward 3-years average supply growth rates for each market;
Global real estate market update 5Tomorrow’s cities: Tactical calls and market
themes
Fig. 4: U.S. short-term city selection Fig. 5: Key U.S. market themes
Los Angeles Austin
warehouse Largest U.S.
warehouse development
U.S.-China project
trade dispute underway in
U.S.-China Manhattan
impacting
trade dispute
Philadelphia West Coast
impacting
ports
Salt Lake City office west coast
office ports
Cyclically Cyclically Millennials are Educated
unsupportive attracted to population
supportive southwest and with growing
southeastern tech
U.S. Attracting presence
companies
Tampa Chicago from California
apartments apartments due to better
quality of life
Cyclically
neutral
Las Vegas Boston
apartments office
Denver
warehouse
At this stage of the current U.S. real estate cycle, carefully
choosing markets and property types in which to invest
remains critical. Our continued work on disruptors to
commercial real estate, and monitoring of key trends across
the different sectors, directly contribute to those cities on our
tomorrow’s world universe we believe will outperform in 2019.
Source: Nuveen, June 30, 2019.
Global real estate market update 6Our focus markets: North America
35 North American Cities
Atlanta, GA Denver, CO Minneapolis, MN Phoenix, AZ San Francisco, CA
Austin, TX Fort Lauderdale, FL Nashville, TN Portland, OR San Jose, CA
Boston, MA Honolulu, HI New York, NY Riverside, CA Seattle, WA
Charleston, SC Houston, TX Oakland, CA Sacramento, CA Tampa, FL
Charlotte, NC Las Vegas, NV Orange County, CA Salt Lake City, UT Toronto, Canada
Chicago, IL Los Angeles, CA Orlando, FL San Antonio, TX Vancouver, Canada
Dallas, TX Miami, FL Philadelphia, PA San Diego, CA Washington, DC
Nuveen may determine to invest in cities other than those included in this total. The Nuveen list of global cities is based on the advisor’s current analysis as of the date represented herein and is subject to change over time.
Global real estate market update 7European real estate
Global real estate market update 8The evolving investment landscape
Polarization of sector fortunes
With the all-encompassing cyclical drivers of rental the last 18 months, except in German A cities and the
growth and yield compression running out of road, Dutch Randstad. However, interest rate rises are Headline investment activity
the fundamental differences between sectors are back likely to be pushed back beyond 2020 so we expect a remains historically strong, but
on the minds of investors. defensive backdrop for office cap rates. volumes are retreating slightly.
The logistics sector still benefits from underweighted The residential sector is internationalizing largely Offices continue to benefit from
investors who are increasing allocations along new niche sectors such as micro-apartments, rental growth, but the medium-term
substantially. With e-commerce dominating the co-living, senior living and student housing. Similar outlook is more muted.
headlines, logistics is clearly priced for growth. While to the logistics sector, living investments have
we also expect rental growth in logistics to secular winds in their sails; most investors are Rising sector allocations drive
significantly outperform previous cycles, recent deals under-allocated and the sector is bolstered by investment volumes and pricing for
seem to imply aggressive growth expectations that demographic changes driving a shift in demand. logistics. Strong construction activity
the market is unlikely to deliver on. Retail on the Investors face a similar dilemma as with logistics. supplies product.
other hand is becoming increasingly unloved as the Do secular trends like rising tourism and growing
challenge of e-commerce is filtering through the international student numbers justify the high Retail valuation in continental
system. On a pan-European basis, valuations have valuations? Europe has fallen for two
been drifting downward over the last six months with consecutive quarters. France,
losses so far confined to secondary assets. Germany and central and eastern
Europe defy the downward trend
Double-digit rental growth across many office much better than other markets.
markets has vindicated low yields in the office sector
in recent years. Yields haven’t compressed much over Niche living markets are developing
fast, but secular opportunities seem
largely priced in.
Global real estate market update 9Cyclical city recommendations: stay selective
Fig.6: Short-term city and sector selection Fig.7: Key market themes
Residential
Mixed use Berlin market
Food- Urban opportunities
anchored logistics
retail
Student Which type
Residential
housing of Brexit is
priced in? Growth is not
London Logistics translating
Amsterdam
flying, SCs into returns
Leisure Defensive grounded
Supportive
centers
Distribution Limited
centers growth, but
Paris high prices
Increased
Munich risk due to
Best populist
Vienna opportunities politics
for rental
Selective growth
Stockholm
Madrid
Build-to-core Copenhagen
Utrecht Supply-disciplined
office markets
Immediate interest rate concerns have dissipated but should
remain on the mind of long-term investors. No local market is
expected to be a standout performer late cycle, so investors
should focus on long-term value, themes and defensive quality of
assets. Long-term convictions need to take precedent over
cyclical considerations.
Source: Nuveen, Q3 2019.
Global real estate market update 10Our focus markets: Europe
42 European Cities
Amsterdam, Netherlands Copenhagen, Denmark Lisbon, Portugal Prague, Czech Republic*
Antwerp, Belgium Dublin, Ireland London, UK Rome, Italy
Barcelona, Spain Düsseldorf, Germany Luxembourg, Luxembourg Rotterdam, Netherlands
Berlin, Germany Edinburgh, UK Lyon, France Stockholm, Sweden
Bilbao, Spain Frankfurt, Germany Madrid, Spain Stuttgart, Germany
Birmingham, UK Geneva, Switzerland Manchester, UK The Hague, Netherlands
Bologna, Italy Gothenburg, Sweden Milan, Italy Toulouse, France
Bordeaux, France Hamburg, Germany Munich, Germany Utrecht, Netherlands
Brussels, Belgium Helsinki, Finland Oslo, Norway Vienna, Austria
Budapest, Hungary* Istanbul, Turkey* Paris, France Warsaw, Poland*
Cologne, Germany Zurich, Switzerland
*These cities are classified as Progressive Investment Cities. Certain investment restrictions apply.
Nuveen may determine to invest in cities other than those included in this total. The Nuveen list of global cities is based on the advisor’s current analysis as of the date represented herein and is subject to change over time.
Global real estate market update 11Asia Pacific real estate
Global real estate market update 12Robust capital markets despite rising risks
Investment activities across the Asia Pacific commercial property Fig.8: Asia Pacific GDP forecast
market started the year in a relatively soft patch after the record high
in 2018. Transactions slowed to US$30.8 billion in Q1, 13% below
the quarterly average of the past five years. This trend is similar
throughout most regional economies, with Japan and Hong Kong
witnessing the biggest drop in volumes versus the same period 4.9
last year.
4.8
While transactions slowed in Q1, capital flows into Asia Pacific over
the near term should be supported by a more accommodative interest
4.7
rate environment. As most regional central banks have reversed the
tightening bias since the end of 2018, interest rate expectation has
4.6
been lowered lately, pointing to more benign financing conditions
and, consequently, ongoing sturdy capital market strength.
4.5
Concurrently, the immediate pressure for outward yield shift has
subsided as interest rises are kept on hold.
4.4
Looking beyond interest rate cycles, the Asia Pacific real estate
market is rapidly becoming more institutionalised, as reflected by the 4.3
increasingly important role played by cross-border investors. This
trend is most pronounced in China over the past quarter. To some 4.2
extent, this is attributed to the divestment pressure of the Chinese
asset holders (in response to the government’s ongoing deleveraging
initiative) and also signals that the country’s financial reform has
started to bear fruit. As regional markets continue to mature, Asia
APAC 2019 APAC 2020
Pacific is set to see further expansion of its investable stock.
Source: Consensus Economics, 2019
Global real estate market update 13Cyclical recommendations
Fig.9: Short-term city and sector selection Fig.10: Key market themes
Hong Kong
office Tokyo Consumption
Property tax
Sydney/Melbourne retail increase to hit tax hike in
Sydney/Melbourne Escalation of trade October raises
office commercial
retail war points to sub- RE returns growth risks in
Singapore 6% growth this H2
year
office
Tokyo
office
Brisbane Cyclically Cyclically
office
supportive neutral
Tokyo Growth outlook
Seoul
logistics among weakest
office
within South East
Asia
Sydney
student housing
Cyclically
unsupportive
Rates lowered, to
all-time low, with
Shanghai/Beijing Singapore
another cut
retail retail expected
Source: Nuveen, June 30, 2019
Global real estate market update 14Our focus markets: Asia Pacific
17 Asia Pacific Cities
Adelaide, Australia Guangzhou, China Osaka, Japan Shenzhen, China
Auckland, New Zealand Hong Kong, Hong Kong Perth, Australia Singapore, Singapore
Beijing, China Melbourne, Australia Seoul, Korea Sydney, Australia
Brisbane, Australia Nagoya, Japan Shanghai, China Tokyo, Japan
Canberra, Australia
Nuveen may determine to invest in cities other than those included in this total. The Nuveen list of global cities is based on the advisor’s current analysis as of the date represented herein and is subject to change over time.
Global real estate market update 15U.S. real estate securities
Global real estate market update 16Public market trends
U.S. Real Estate Securities Sector Outlook
• REITs have exhibited both defensive and offensive characteristics. We
believe earnings growth expectations for REITs and the broader equity
market have converged as global growth expectations have moderated. An
accommodative Federal Reserve should help keep interest rates in check. Office ●
• Fund flows appear to have stabilized after significant outflows in 2018,
which was a meaningful headwind for the group.
Healthcare ●
• Private capital demand for real estate remains though cap rate Malls ●
compression has likely run its course in most property sectors. Net asset
value discounts have narrowed but are wider in certain property types
Industrial ●
such as central business district office and malls. We have seen an
increase in REIT M&A activity and activism, which could lead to further
Lodging/Hotels ●
opportunities. Apartments ●
• Fundamentals generally remain healthy across most property sectors. We Technology infrastructure ●
see fewer growth headwinds than in the recent past. Investors continue to
debate where we are in the economic and real estate cycle. Self-storage ●
• Replacement costs have increased meaningfully over the last few years Manufactured homes ●
due to inflationary cost pressures. This should help keep supply levels in
check and/or help with rental rate growth across various sectors. Single family ●
• Balance sheets are as healthy as they have been in some time for much of Student housing ●
the REIT segment. Capital markets remain fluid and debt costs remain
cheap, especially relative to historical levels.
Net lease ●
Community centers (strip malls) ●
● Negative ● Neutral ● Positive
Source: Nuveen Asset Management, June 30, 2019
Global real estate market update 17Our real estate capabilities
Global real estate market update 18Real estate
Top 5 real estate manager globally2
• Strong heritage: Over 80 years of real estate investing experience,
● $42B Retail
combining a long and proven history with deep sector expertise
● $37B Office
• Investing in tomorrow’s world: Strategies developed with an
$129B ● $20B Housing understanding of the structural trends which will shape and impact
AUM1 ● $13B Industrial/Logistics the future of real estate
● $8B REITs • Global presence: Unparalleled reach with more than 550 employees3
located in over 25 cities in the United States, Europe and Asia Pacific
● $4B Other securities
SPECIALIST CAPABILITIES
Nuveen Real Estate Nuveen Equity
$121B $8B
• Equity • Global REITs
• Debt • U.S. REITs
1 AUM as of 31 Mar 2019. Nuveen assets under management is inclusive of underlying affiliates. Totals may not equal 100% due to rounding.
2 ANREV/INREV/NCREIF Fund Manager Survey 2019. Survey illustrated rankings of 172 fund managers globally by AUM as at 31 Dec 2018.
3 Includes 297 real estate investment professionals, supported by a further 250+ Nuveen employees.
Global real estate market update 19Important information
The information provided does not take into account the specific objectives or circumstances of
any particular investor, or suggest any specific course of action. Financial professionals should
independently evaluate the risks associated with products or services and exercise independent
judgment with respect to their clients.
All information is as of 30 Jun 2019, unless otherwise disclosed.
Nuveen Real Estate is a real estate investment management holding company owned by
Teachers Insurance and Annuity Association of America (TIAA). Nuveen Real Estate securities
products distributed in North America are advised by UK regulated subsidiaries or Nuveen
Alternatives Advisors, LLC, a registered investment advisor and wholly owned subsidiary of TIAA.
This material is not intended to be a recommendation or investment advice, does not constitute a
solicitation to buy or sell securities, and is not provided in a fiduciary capacity. The information
provided does not take into account the specific objectives or circumstances of any particular
investor, or suggest any specific course of action. Financial professionals should independently
evaluate the risks associated with products or services and exercise independent judgment with
respect to their clients.
Real estate investments are subject to various risks, including fluctuations in property values,
higher expenses or lower income than expected, currency movement risks and potential
environmental problems and liability.
Past performance is no guarantee of future performance.
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