Perspectives in today's real estate market - November 2020
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Perspectives
in today’s
real estate
market
November 2020
Nuveen Real Estate Global Research
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 1Global real estate outlook
Industrial/ Residential/
Overall Retail Office RE Debt
Logistics Multifamily
U.S.
Canada
U.K.
France
Germany
Spain
Australia
China
Japan
South Korea
Negative Neutral Positive
Source: Nuveen Real Estate
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 2Economic scenarios and real estate implications
Nuveen Real Estate hypothetical economic scenarios loosely follow IMF global outlook
Scenario 1 Scenario 2 Scenario 3
• Time limited shock; deep but short- • Extended lockdowns - epidemic • Pandemic extends to 2021 with second
lived recession under control late Q3 round of outbreaks
• Pandemic comes under control in Q2 • Deep recession extends into Q3; slow • Demand and activity collapse beyond
recovery from Q4; rebound 2021 the direct impact of the health
• Major policy initiatives limit emergency
corporate defaults and job losses • Corporate defaults surge as finance
conditions tighten; job losses • Ballooning public debts and massive
• Bounce-back from Q4; pent up
demand stimulus from early 2021
+
intensify bankruptcies leads to financial
instability
Real estate implications
~900
• Prime rents stable (except retail) and • Prime rents contract modestly in • Prime rents fall rapidly from Q4 2020 to
occupier markets slow down into 2021, improving from 2022 2022; stable 2023. More volatile
2021 as corporate sector takes stock; depending on market and sector markets feel greater pain
rapid recovery from 2022
•
~200
Core yield begin to rise slowly from • Yields rise sharply from Q4 2020 till
• Cost of debt leads to short-lived, Q2 2020 intensifying
Stability filter: into 2021; fully 2022 – but not as damaging for core
modest yield rises for core in Q3 and re-priceCities
in 2022
in countries income as in GFC
with adequate
Q4 2020 primarily in riskier political and economic
cities/sectors • Opportunities
stability for core investments • Repricing late 2022/early 2023
and very good for Value Add
• Good opportunities for Value Add
June July August September October November December
Source: Nuveen Real Estate, IMF
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 3Why now for real estate? Accelerating opportunity
The pandemic has not caused a paradigm shift for real estate, rather it has accelerated already-present
underlying trends. Currently signs of a recovery are beginning, which makes the opportunity to invest in
real estate timely.
Commercial Property Price Index
180
Global Financial Crisis
Industrial
Free fall for all sectors
160 Medical office
Apartment
140
Core property
120 aggregate
Office
100
Strip Center
Lodging
80 COVID-19
Mall
Winning and losing sectors amplify
existing dispersion and show diverse
60 recovery trajectories.
40
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: Green Street
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 4Why now for real estate?
Stable, high yields and strong value
Real estate yields are strong Strong relative value:
Real Estate Cap Rate / U.S. Treasury
Baa Rated Long Term Bond Yield
Nominal Cap Rate
Current Spread Average Spread
10.0% 6.0%
9.0%
5.0%
8.0%
4.39%
4.0%
7.0%
5.6% 3.21%
6.0% 3.0%
5.0%
2.0%
4.0%
1.0%
3.0% 3.4%
2.0% 0.0%
2006
2006
2007
2008
2009
2009
2010
2011
2012
2012
2013
2014
2015
2015
2016
2017
2018
2018
2019
2020
Commercial real estate may provide investors with The current spread between direct real estate cap rates and U.S.
tax-efficient stable yields due to the long term nature of leases. Treasuries is well above the historic average, signaling real
These yields are currently historically high relative to bonds. estate’s strong relative value.
Source: Source Green Street; Nominal Cap Rate of Major Sectors. "Major Sectors" is the equal-weighted average of the asset-weighted averages for the five major property sectors (Apartment, Industrial, Mall, Office, and Strip Center):
U.S. Board of Governors of the Federal Reserve System.
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 5Asia Pacific
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 6Asia Pacific-specific view
Regional: Backed by low community infection
rates, a travel bubble between Hong Kong and Market Risk Investments Risk
Singapore will begin on November 22. Plans are Prime
afoot for a similar arrangement between Hong
Australia
Kong and Guangdong province, China from China Secondary
November 23.
Having slowed quite sharply through to Q3 this Hong Kong Development
year, fund raising activities look to be picking up.
Japan Debt
BentalGreenOak and PAG have separately raised
in total more than $5 billion in equity to invest
into Japan. Investment volumes in Japan have
New Zealand
already reached close to 80% of last year’s level Singapore Prime: Resilient and fundamentally
in Q3, reflecting strong institutional interests in strong markets and assets to provide
core commercial real estate especially logistics as South Korea most attractive long-term income and
well as alternative sectors such as multifamily returns
and data centres. Favorable Neutral Unfavorable
Secondary: Pricing and income
China/Hong Kong: CBRE predicts that China’s commercial real estate investments will
security under pressure as financially
double to $100 billion by 2030, driven by the increase in capital from insurers, emergence
weak tenants are most vulnerable
of more investment funds & creation of REITs. So far this year, volumes have already
under current setting
exceeded last year’s total, reflecting the first-in-first-out recovery from the pandemic.
With more than 6,000 employees in Hong Kong, Standard Chartered is reportedly
Development: Uncertainty
planning permanent work from home arrangements, covering 90% of global headcount by
heightened in terms of construction
mid-2022.
period and leasing discussions
Australia: Even with infections now under control in the state of Victoria, an uncertain
economic outlook has led the RBA to cut its target for three-year bond yields to 0.1%, Debt: Flight to safety assets and
from 0.25%, to align with the cash rate, which, it pledged will remain unchanged until increased banking stress provide
inflation is sustainably within its 2-3% target band. The central bank also said it would buy opportunities for lenders
A$100 billion (S$95.99 billion) of government bonds with maturities of around five to 10
years over the next six months in order to aid the recovery.
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 7APAC: dislocation, divergence and rotation
U.S.$ billion % of total
200 100%
180 90%
160 80%
140 70%
120 60%
100 50%
80 40%
60 30%
40 20%
20 10%
0 0%
2016 2017 2018 2019 Q1-Q3 2016 2017 2018 2019 Q1-Q3
2020 2020
Office Retail Office Retail
Industrial ex DC Data centers Industrial ex DC Data centers
Hotel Student housing Hotel Student housing
Senior housing & care Other multifamily Senior housing & care Other multifamily
Source: RCA
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 8Europe
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 9European-specific view
Regional: Sector Risk Investments Risk
• Second wave of infections spreading
across Europe. U.K., France and Spain Office Prime
adopting regional lockdowns to restrict
activity Retail Secondary
• Current forecasts predict Germany,
Austria and Netherlands GDP to lead the Logistics Development
recovery
• Italy and Spain do not return to pre- Housing Existing value-
pandemmic levels of output until 2023 add
Offices: Developers have been more
disciplined than in previous cycles, Future value-
Market Risk but they are cyclical and future impact add
of remote working on requirements is
Germany a big uncertainty. Debt
U.K. Retail: Woes likely to be exacerbated • Prime: Assets with secure
with pain spreading to countries such covenants are always defensive and
France as Germany, Spain and Italy lead the recovery
Italy Logistics: Benefits from structural • Secondary: suffer from weak
Spain tailwinds but development activity is tenant demand and low liquidity.
strong, and it has been a very cyclical Price corrections will be more
Netherlands market historically pronounced.
Austria Housing: Supported by • Development: increased leasing
demographic tailwinds and generally risk on speculative schemes
Favorable Neutral Unfavorable less cyclical. Niches such as co-living
or student housing may prove less • Debt: lending on conservative
stable. LTVs and secure covenants
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 10GDP expectations by country
Countries are expected to need 1.5 to 3 years to get back to end 2019 GDP levels
Quarters from Q4 2019 before GDP reaches previous peak again
14
13 2021 Q2 2021 Q3 2021 Q4
12 12
12
2022 Q1 2022 Q2 2022 Q4
11
10 10 10
10
9 9 9 9 9
9
8
8
7 7 7
7
6 6
6
5
4
3
2
1
0
Source: Oxford Economics, August 2020
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 11Other forecasters are more optimistic
Control of the virus, fiscal strength and dependence on service industry key for 2020 performance
GPD growth % p.a., 2019. 2020 und 2020-2024
8 2019 2020
6 5.5
4.9
4.2
4
2.2 2.4 2.5
2.0 1.8
2 1.2 1.5 1.3 1.4 1.4 1.3
1.0 0.6
0.3
0
-2
-1.8 -1.7
-4 -3.1 -3.1
-3.9 -3.6
-6 -5.0 -4.9 -4.7
-5.3 -5.3 -5.1
-5.9 -5.8 -5.6 -5.6
-8
-7.6
-10
Source: Oxford Economics
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 12CRE transactions have fallen in all sectors across
Western Europe, but not collapsed
€ billion
Office Industrial Retail Apartment Hotel
€ 120
€ 100
€ 80
-39%
€ 60
€ 40 -31%
-27%
€ 20
-33%
€-
-61%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
Source: RCA; *2020 based on annualising Q1-Q3
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 13Capital will target logs, alts and residential; retail
will be abandoned by investors/banks until it hits
bottom
PMA Investor intentions survey Q3 2020
100%
80%
Residential
60%
40% Logistics
20%
Office
0%
-20% Development
-40%
-60% Retail
-80%
-100%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: PMA, Q3 2020
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 14The COVID recession will leave stranded assets behind
A range of hotels, co-working, restaurant, retail and theme park assets will never open again
Global economic
downturn
Lower business Structural Take advantage of
investment demand shifts
short to medium
term market
dislocation and
Re-tooling and
Lower business
confidence
re-organisation focus on structural
costs
long term upsides
Rising
(government) Bankruptcies
debt
Rising financing
Job losses
costs
Falling retail
sales
Source: Nuveen Real Estate
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 15How important are international visitors?
Internationally dependent markets hardest hit?
Economies where hospitality, retail and services are highly
dependent on international travel
7
Reykjavik
International visitors as % of resident population
Krakow
6 Amsterdam
Paris Geneva
Prague
5 Florence
Dublin
4
Frankfurt
Edinburgh Venice
3 Vienna
Munich
Warsaw Brussels
Rome
Basel Belfast Budapest
2 Oslo Lisbon
London
DüsseldorfBerlin Bucharest Copenhagen Barcelona
Brighton Nice-Cannes
Duisburg Liverpool Milan Zurich
Portsmouth-Southampton Sevilla
1 Glasgow Stuttgart Cologne Madrid
Helsinki Genova
Birmingham Stockholm Antwerp ThessalonikiAthens
Nottingham Lyon Manchester Strasbourg Sofia Porto Valencia
Gothenburg Marseille Rotterdam
Sheffield NewcastleDortmund Lille Turin Liege Naples
0
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
International visitors as % of all visitors
Source: Oxford Economics
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 16United States
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 17U.S.-specific view
Sector Risk
Regional:
The path of the real estate recovery will mirror the path of the Office
economic recovery – and both are dependent on the trajectory of
the virus. A U.S. real estate recovery could be expected soon after a Retail
vaccine is widely available in mid-2021. Industrial
Since February 2020, commercial real estate prices have fallen 10%, Housing
as calculated by the Green Street Commercial Property Price Index
Alternatives*
(‘CPPI’). Similarly, during the year ending September 2020,
NCREIF Property Index appreciation returns were down 2.22%. Debt
However, value declines have been uneven across property types as
Favorable Neutral Unfavorable
the pandemic has affected different segments of the economy and
consumers to varying degrees.
Office: National office fundamentals continued to weaken due to the pandemic-induced
recession which has forced employers to adopt work-from-home policies. CBRE-EA
According to Real Capital Analytics (‘RCA’), real estate estimates U.S. office vacancy will rise from 12.3% in Q1 2020 to a high of 14.4% in Q1 2021.
transaction volumes were down 40% during the
Retail: The retail sector has been disproportionally affected by the ongoing pandemic,
January to September period in 2020 relative to 2019 highlighting the K-shaped nature of the U.S. real estate market’s recovery. Retail values
levels. During this time, apartments and industrial declined 21.5% year-over-year in Q3, according to Green Street CPPI.
captured almost 56% of total U.S. transaction volumes, Industrial: Industrial has been a top-performing property type since the pandemic
illustrating the strong investor interest in these two took hold. According to Green Street CPPI, industrial values rose 6.8% between February
and October 2020.
property types. Real estate transaction volumes tend to
Housing: Newly executed apartment leases across major coastal markets are seeing
lead real estate values by 3-6 months, suggesting U.S. rents fall by as much as ~20%. Meanwhile, the Sunbelt markets together with second tier
real estate values could fall by more than the 10% markets are seeing positive new lease rate changes.
recorded so far by the CPPI. Alternatives: Alternative demand drivers rely less on economic growth and more on
demographics, healthcare, and technology, positioning them for resilience and
outperformance throughout cycles.
Debt: Spreads for commercial mortgages have tightened after widening significantly
during the outset of the COVID-19 pandemic. Historically low rates and quantitative
easing have led to higher demand and stronger capital flows for higher-yielding assets such
Source: Green Street; NCREIF; Real Capital Analytics as mortgages.
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 18Alternatives resilient throughout COVID-19
Property values increased by 0.4% from September to October. Aggregate U.S. property values remain 10%
below pre-pandemic pricing
10% Change in property values since Feb '20
Alternative Sector Traditional Sector 7%
4% 5%
5%
1%
0%
-5%
-4%
-5%
-7%
-10% -8%
-10%
-15%
-15%
-20%
-25%
-25%
-30%
Mall Strip Center Senior Office Apartment Self-Storage Medical Life Science Manufactured Single-Family Industrial
Housing Office Housing Rental
(stabilized)
Source: Green Street CPPI, November 2020
*Single-Family Rental source is S&P CoreLogic Case-Shiller Home Price Index (through August 2020)
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 19Case study: Industrial sector
Accelerating the e-commerce tidal wave: According to recent data, COVID-19 has accelerated
e-commerce penetration rates by 4+ years
20.00%
Four years ahead of forecast!
18.00%
2018
16.00% 9.5%
14.00%
12.00%
10.00%
8.00%
6.00%
2015 2016 2017 2018 2019 2020 2021 2022 2023
Each $1B increase in e-commerce retail sales equals 1.25M sq ft of industrial
demand
Source: Moody’s Analytics, August 2020
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 20Nuveen Real Estate Global research
Alice Breheny (London)
Global Head of Research
Stefan Wundrak (London) Melissa Reagen (New York) Harry Tan (Hong Kong)
Head of European Head of Americas Head of Asia Pacific
Research Research Research
Angela Goodings (London) David Segall (New York)
Director, Director,
European Research Americas Research
Michael Keogh (London) Jacinda Lofland (Charlotte)
Director, Director,
European Research Innovation & Strategy
Andy Schofield (London) Daniel Manware (New York)
Director, Senior Associate,
European Research Americas Research
Darren Rawcliffe (London)
Elina Samandyk (New York)
Director,
Analyst,
European Research
Americas Research
Maria Grubmueller (London) Christian Mera (Newport Beach)
Associate, Analyst,
European Research Data Science
Haoran Wu (London) Jayanth Ganesan (New York)
Analyst, Analyst,
European Research Americas Research
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 21Important information
All information is sourced by Nuveen Real Estate. This material is provided for This information does not constitute investment research as defined under MiFID.
informational or educational purposes only and does not constitute a solicitation of any
securities in any jurisdiction in which such solicitation is unlawful or to any person to Issued by Nuveen Real Estate Management Limited (reg. no. 2137726), (incorporated
whom it is unlawful. Moreover, it neither constitutes an offer to enter into an investment and registered in England and Wales with registered office at 201 Bishopsgate, London
agreement with the recipient of this document nor an invitation to respond to it by making EC2M 3BN) which is authorised and regulated by the Financial Conduct Authority to
an offer to enter into an investment agreement. provide investment products and services. Telephone calls may be recorded and
monitored. The value of an investment and the income from it can fall as well as rise and
This material may contain “forward-looking” information that is not purely historical in you may not get back the amount originally invested. YOUR CAPITAL IS AT RISK.
nature. Such information may include projections, forecasts, estimates of yields or
returns, and proposed or expected portfolio composition. Moreover, certain historical Real estate investments are subject to various risks, including fluctuations in property
performance information of other investment vehicles or composite accounts managed values, higher expenses or lower income than expected, and potential environmental
by Nuveen may be included in this material and such performance information is problems and liability. Please consider all risks carefully prior to investing in any
presented by way of example only. No representation is made that the performance particular strategy. A portfolio’s concentration in the real estate sector makes it subject to
presented will be achieved, or that every assumption made in achieving, calculating or greater risk and volatility than other portfolios that are more diversified and its value may
presenting either the forward-looking information or the historical performance be substantially affected by economic events in the real estate industry. International
information herein has been considered or stated in preparing this material. Any investing involves risks, including risks related to foreign currency, limited liquidity
changes to assumptions that may have been made in preparing this material could have particularly where the underlying asset comprises real estate, less government
a material impact on the investment returns that are presented herein by way of regulation in some jurisdictions, and the possibility of substantial volatility due to adverse
example. political, economic or other developments. Any assumptions made or opinions
expressed herein are as of the dates specified or if none at the document date and may
This material is not intended to be relied upon as a forecast, research or investment change as subsequent conditions vary. In particular, this document has been prepared
advice, and is not a recommendation, offer or solicitation to buy or sell any securities or by reference to current tax and legal considerations that may alter in the future. This
to adopt any investment strategy. The information and opinions contained in this document may contain “forward-looking” information or estimates that are not purely
material are derived from proprietary and non-proprietary sources deemed by Nuveen to historical in nature. Such information may include, among other things, illustrative
be reliable, and not necessarily all-inclusive and are not guaranteed as to accuracy. projections and forecasts. There is no guarantee that any projections or forecasts made
There is no guarantee that any forecasts made will come to pass. Company name is will come to pass.
only for explanatory purposes and does not constitute as investment advice and is
subject to change. Any investments named within this material may not necessarily be Nuveen Real Estate is a real estate investment management holding company owned
held in any funds/accounts managed by Nuveen. Reliance upon information in this by Teachers Insurance and Annuity Association of America (TIAA) . Nuveen Real Estate
securities products distributed in North America are advised by UK regulated
material is at the sole discretion of the reader. Views of the author may not necessarily subsidiaries or Nuveen Alternatives Advisors, LLC, a registered investment advisor and
reflect the view s of Nuveen as a whole or any part thereof. wholly owned subsidiary of TIAA, and distributed by Nuveen Securities, LLC, Member of
GPP-1412066CG-Q1120W
FINRA and SIPC. Nuveen, LLC ("Nuveen") provides investment advice and portfolio
Past performance is not a guide to future performance. Investment involves risk, management services through TIAA and over a dozen affiliated registered investment
advisers. Nuveen Real Estate is an investment affiliate of Nuveen.
including loss of principal. The value of investments and the income from them can fall
as well as rise and is not guaranteed. Changes in the rates of exchange between
currencies may cause the value of investments to fluctuate.
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 22You can also read
