Perspectives in today's real estate market - Nuveen
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Perspectives in today’s real estate market 1Q 2021 Nuveen Real Estate Strategic Insights OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Global real estate outlook
Next 12 months
NEGATIVE NEUTRAL POSITIVE
Industrial/ Real Estate
Overall Retail Housing Office Alternatives
Logistics Debt
U.S.
Canada
U.K.
France
Germany
Spain
Australia
China
Japan
South Korea
Note: ‘Alternatives’ refers to real estate driven by alternative housing, healthcare and technology in the U.S./Asia Pacific and real estate driven only by alternative technology in Europe
Source: Nuveen Real Estate
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 2Global trends driving opportunity and risk
Short term Long term
trends in global real estate: trends in global real estate:
• Lenders continue to show leniency with • Evolution towards alternative real estate
real estate borrowers as they expect the
• Growth of importance of ESG factors in
pandemic to have largely temporary effects
real estate
• While many domestic markets hold up
• More flexible office and work-from-
well, capital flows have become less
home arrangements
international as travel restrictions bite
• Rising inflationary expectations and spike
in long term yields point to improved
growth outlook and will underpin ongoing
strong investment interest
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 3Long-term trends – implications and commentary
Evolution towards Growth of importance of More flexible office and
alternative real estate ESG factors in real estate work-from-home
arrangements
• Smaller lot sizes: • The journey to net zero
challenges in achieving carbon buildings has begun • The need for well connected
scale and a ‘brown discount’ will ‘smart buildings’ that
begin to emerge in some support hybrid working
• Increased role for sectors – likely to be led by models is paramount
operators: identification of offices in key European
best in class is imperative markets such as London and • Office buildings will be
Amsterdam expected to have a positive
• Understanding global
impact on personal
megatrends such as • Regulations such as the EU wellbeing
demographic shifts, low SFDR and the New York
carbon economy transition carbon regulations will drive • Changing working patterns
and technological further action and combined with shifting
disruption will be key to transparency transport trends could
identifying which fundamentally impact the
alternative real estate will • An increase in focus on the nature of cities
succeed social value of real estate:
opportunities will emerge to
re-purpose redundant use
types and provide something
more relevant for local
communities
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 4Shifting trade routes impact logistics real estate
Following break downs in the supply chains around the world, new trade routes are
emerging. We expect these new routes to create opportunity for industrial/logistics real
estate.
Implementation stage U.S. - Brazil (mini)
EU – Japan (since 2019) U.K.*-Ukraine
EU - Vietnam (since 2020)
AfCFTA 55 African countries (from 2021)
U.S. - Mexico -
Under negotiation Canada
EU – Australia
Asia/China: Regional
(USMCA)
EU – New Zealand Comprehensive
UK – Australia/New Zealand Economic Partnership
UK - CPTPP
U.S. - ??? EU – U.S. (RCEP)
(mini)
U.K.* - Canada
U.K.* - Singapore
U.S. - China U.K.* - Japan EU - U.K. (Brexit)
(Phase 1) EU - Mexico EU - Mercosur (CEPA) EU - China
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Q1 Q2 Q3 Q4
*Rollovers of EU deals
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 5Economic recovery will support real estate
Consumers have been staying home and saving. Pent-up demand in the consumer sector
is likely to drive demand for housing, ecommerce and services. We expect that activity
will re-inflate real estate markets around the globe.
Savings ratio, personal sector (%)
20
18
16
14
12
10
8
6
4
2
0
France Germany United Italy Spain United States Canada Japan
Kingdom
2019 2020
Quelle: Macrobond, 2021
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 6Asia Pacific
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 7Asia Pacific view
Policy induced recovery dynamic in full motion, with vaccine rollouts driving a
broader-based and above-trend recovery in 2021
• Infection rates have eased across the region while vaccine rollouts are gathering pace, pointing to an accelerated
pick-up in growth momentum in the second half of the year:
— Economies are easing restrictions to help normalize economic activity
— Vaccinations will help sever the link between infection and mobility
— Fiscal stimulus will continue to mitigate downside risks, anchored by ongoing accommodative monetary
policy
• Regional imbalances to persist with China, Australia and Japan leading the recovery; current gap between a
booming manufacturing and suppressed services sector to narrow with incremental pick-up in tourism towards
year-end boosting consumer spending which points to:
— Ongoing strong occupier demand for modern logistics space anchored by e-commerce and new demand in
fresh groceries driving cold storage;
— Cautiously improving outlook for retail as income and spending strengthens alongside travel;
— Investment interests continue to rotate towards structurally underpinned sectors such as data centers,
multifamily and life sciences with scattered interests in selective office markets anchored by tech and life
sciences
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 8Post-Covid-19, bigger divergence in market trends
While the outlook for offices remain uncertain still, selective sub-markets maintain
good value as business sentiment returns
Sydney/Melbourne
office
Brisbane Office highlights
office
• Australian east coast markets
- While vacancy and incentives have risen
across all markets, rents are likely to
Seoul office stabilize in 2021 as business confidence
picks up
Cyclically
Cyclically neutral
supportive - Sydney Grade A offices retain strong value
Singapore
on tight supply and emergence of new
office
Tokyo logistics
economy industries
• Tokyo
Tokyo
Seoul logistics retail - Rents are softening as work from home
Tokyo initiatives bite into take-up especially in
Sydney/Melbourne office supply led sub-markets such as Marunouchi
student housing
and Otemachi
Cyclically unsupportive - Tight pricing remains a challenge
Sydney/Melbourne
• Seoul
Shanghai/Beijing
retail - Gangnam business district still a coveted
retail Singapore retail investment and occupier market with
Hong Kong office
vacancy at sub-5%
Hong Kong retail
Source: RCA
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 9Office market outlook stays challenging in 2021
Take-up across most regional markets likely to stay suppressed, as uncertainties
persist over flexi-work but value is emerging in some micro-markets
CBD net effective rents
20%
15%
10%
Over a year ago change
5%
0%
-5%
-10%
-15%
-20%
-25%
Hong Kong Singapore Sydney Beijing Shanghai Tokyo Melbourne Osaka Seoul
2020 2021F
Source: RCA
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 10Investment appetite regaining traction
A low-for-longer interest rate environment, a better-than-expected economic
outlook and capital on the sidelines will boost volumes in 2021
Investment volumes
180
160
140
120
US$ billion
100
80
60
40
20
0
Dec-12
Mar-13
Mar-20
Mar-11
Sep-11
Dec-11
Mar-12
Sep-12
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17
Sep-17
Dec-17
Mar-18
Sep-18
Dec-18
Mar-19
Sep-19
Dec-19
Jun-20
Sep-20
Dec-20
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
12-month Rolling Quarterly
Source: RCA
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 11Europe
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 12Europe view
Despite lockdowns since late autumn infection rates are poised to rise in third
wave. So far, vaccination roll-outs are too slow to make much of an impact.
• Despite lockdowns, the big European markets remain active on the investment side. More domestic
markets such as Germany, Sweden or France fare better than international markets such as Poland
or the U.K.
• Generous government support, central bank easing and lenders patience relieve pressure from real
estate investors in the battered retail and hospitality industry. The day of reckoning, in form of
forced selling, is postponed to much later in the year.
• The logistics sector is thriving with demand for space going strong as well as investors keen to get
more exposure. Rents and pricing are expected to increase for the remainder of the year.
• Lending markets remain open but pricing and liquidity has bifurcated with sectors out of favor
treated very differently than the rest.
• With businesses forced to move online, prop-tech which has been a relative back water of the tech
world is getting more traction with landlords and other players in the property industry.
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 13European office – key market metrics
The office sector is overshadowed by continuing work from home orders and the
discussion about the long-term impact on markets.
Change in vacancy in 2020 as a % of stock • Take up in 2020 vs the 10-year average:
- 30-40% in London
7
- 55-60% in Central Paris
6 - 65 to 75% in Germany A centers and
Amsterdam
5
• Investment volumes in 2020 vs a year earlier:
4 - London and German Big 4 down 40%
3 - Central Paris down 1/3
• Yields:
2
- Prime quoting yields: Stable
1 - Transacted yields falling/stable in London
and German As; +20 bps increase in Central
0 Paris
-1 • Prime rents:
Paris CBD
La Defense
Munich
Hamburg
Stockholm
Paris WBD
Frankfurt
Madrid
Berlin
West End
City
Milan
Amsterdam
- Prime quoting rents stable (except central
London)
- Incentives up/more lease flexibility & lease
extensions
Source: PMA and JLL for vacancy changes, RCA Q4 2020 for stats on investment activity
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 14European retail pricing – wider differences
between formats
Shopping centers are under pressure in all countries, while supermarkets even enjoy
prices hardening. Due to Brexit and space oversupply UK retail has lost most value.
Prime yield movement (bps)
250
Shops Shopping center Retail warehouse Supermarkets
200
150
100
50
0
-50
-100
-150
2019 Q1 20 Q2 20 Q3 20 Q4 20
Source: CBRE 2021
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 15Logistics strategy map Nordics:
Denmark and
Norway offer
best pricing
U.K.: NL:
• No end of demand growth in Companies Spec
e-commerce and other logistics move EU hubs developments Germany:
from the U.K. only in Only higher CEE:
services in sight to the selected prime risk spec likely Prefer Czech
continent, locations to deliver over Poland.
benefiting NL Higher quality
• Land restrictions in desirable good returns. requirement
Low risk
locations favour developments market. than Western
Europe
• Risk premia in Southern Europe and
less mature market environments
favour standing assets over spec France:
developments Accelerating
demand
growth.
• A yield premium is available for Medium risk,
selective on
smaller and management intensive spec. Italy:
Low developer
assets returns restrict
new supply
• Significant portfolio premium due to Iberia: benefiting
Huge long- investors
weight of capital allocated to logistics term potential.
Risk premium
available.
• Strategies need breathing space to be
opportunity led
• Main risk is overpaying for low
quality stock and tertiary locationsUnited States
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 17United States view
Emerging demand drivers to provide tailwinds for several property types.
• Throughout the next five years, Sun Belt markets are projected to have the strongest population
growth.
• The demographic wave of millennials growing into their thirties and forties during the next 10 years
will underpin future demand for alternative housing sectors.
• Strong demand for single-family homes and the related construction activity, in the coming decade
will drive demand for warehouses as construction and building material tenants lease warehouse
space.
• A growing share of young adults are living at home, removing them from the rental market.
However, this trend may not necessarily continue and it represents a large untapped pool of
potential renters.
• Highly specialized medical offices and state-of-the-art senior living facilities are best positioned for
future outperformance in the healthcare real estate sector.
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 1810%
30%
40%
20%
0%
-20%
-10%
West Palm Beach 33.9%
Columbus 29.9%
Phoenix 27.6%
Kansas City 25.9%
Dallas 24.2%
Houston 21.3%
Jacksonville 20.1%
San Antonio 19.4%
Source: U.S. Census Bureau; Green Street Advisors
Cincinnati 19.1%
Pittsburgh 19.0%
Austin 17.6%
Charlotte 16.8%
Salt Lake City 16.7%
US
Indianapolis 16.3%
Riverside 14.9%
US
Las Vegas
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
14.3%
Memphis 14.2%
Philadelphia 14.1%
Northeast
Louisville 13.1%
Los Angeles 10.6%
Cleveland 9.7%
St. Louis 9.1%
Midwest
Boston 8.8%
Raleigh 8.8%
Newark 7.2%
Nashville 7.0%
Chicago 6.4%
Sunbelt
Atlanta 6.2%
Minneapolis 6.2%
Tampa 6.1%
Portland 3.5%
YoY growth in single-family home building permits by market as of Dec-20
Baltimore 2.8%
Orlando 2.0%
West Coast
Washington DC 1.9%
Denver 1.5%
Sacramento 1.0%
migration patterns among aging millennials during the past five years.
Detroit -1.4%
Honolulu -3.0%
Orange County -3.4%
San Diego -4.3%
Seattle -5.1%
Long Island -8.1%
New York -9.4%
Miami -9.9%
San Francisco -11.5%
Oakland
Perspectives in today’s real estate market
-12.4%
Sun Belt market single-family demand has benefitted from growing urban-to-suburban
Fort Lauderdale
Sun Belt market demand for single-family homes
-13.5%
San Jose -14.0%
19Single-family homes to drive warehouse demand
We expect demand from single-family home construction activity and related companies
to further support warehouse rent growth as an unrelated but complimentary demand
driver to e-commerce.
Single-family building permit growth & warehouse net absorption through Dec-25
Net Absorption (mil. SF) (R) SF Building Permit Growth (y/y) (L)
60% 100
80
40%
60
20%
40
0% 20
0
-20%
-20
-40%
-40
-60% -60
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
Source: U.S. Census, CoStar, Nuveen Real Estate Strategic Insights
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
Perspectives in today’s real estate market 20Important information
All information is sourced by Nuveen Real Estate. This material is provided for informational or educational purposes are not purely historical in nature. Such information may include, among other things, illustrative projections and
only and does not constitute a solicitation of any securities in any jurisdiction in which such solicitation is unlawful or to forecasts. There is no guarantee that any projections or forecasts made will come to pass.
any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter into an investment agreement with Nuveen Real Estate is a real estate investment management holding company owned by Teachers Insurance and
the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement. Annuity Association of America (TIAA) . Nuveen Real Estate securities products distributed in North America are advised
This material may contain “forward-looking” information that is not purely historical in nature. Such information may by UK regulated subsidiaries or Nuveen Alternatives Advisors, LLC, a registered investment advisor and wholly owned
include projections, forecasts, estimates of yields or returns, and proposed or expected portfolio composition. Moreover, subsidiary of TIAA, and distributed by Nuveen Securities, LLC, Member of FINRA and SIPC. Nuveen, LLC ("Nuveen")
certain historical performance information of other investment vehicles or composite accounts managed by Nuveen may provides investment advice and portfolio management services through TIAA and over a dozen affiliated registered
be included in this material and such performance information is presented by way of example only. No representation is investment advisers. Nuveen Real Estate is an investment affiliate of Nuveen.
made that the performance presented will be achieved, or that every assumption made in achieving, calculating or
presenting either the forward-looking information or the historical performance information herein has been considered or
stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could
have a material impact on the investment returns that are presented herein by way of example.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a
recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information
and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Nuveen to
be reliable, and not necessarily all-inclusive and are not guaranteed as to accuracy. There is no guarantee that any
forecasts made will come to pass. Company name is 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 held in
any funds/accounts managed by Nuveen. Reliance upon information in this material is at the sole discretion of the
reader. Views of the author may not necessarily reflect the view s of Nuveen as a whole or any part thereof.
Past performance is not a guide to future performance. Investment involves risk, 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.
This information does not constitute investment research as defined under MiFID.
Issued by Nuveen Real Estate Management Limited (reg. no. 2137726), (incorporated and registered in England and
Wales with registered office at 201 Bishopsgate, London EC2M 3BN) which is authorised and regulated by the Financial
Conduct Authority to 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 you may not get back the amount originally
invested. YOUR CAPITAL IS AT RISK.
Real estate investments are subject to various risks, including fluctuations in property values, higher expenses or lower
income than expected, and potential environmental problems and liability. Please consider all risks carefully prior to
investing in any particular strategy. A portfolio’s concentration in the real estate sector makes it subject to greater risk
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events in the real estate industry. International investing involves risks, including risks related to foreign currency, limited
liquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions,
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and the possibility of substantial volatility due to adverse 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 change as
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considerations that may alter in the future. This document may contain “forward-looking” information or estimates that
OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES
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