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The pandemic hasn’t changed everything: why real estate makes sense now more than ever
The coronavirus pandemic has not caused a paradigm shift for real estate, rather it has accelerated existing tendencies. The broad impact on the real estate market will evolve over the coming years, but we are already seeing a few important trends play out — and we believe they all make the case for real estate stronger.
1. Real estate sector performance is becoming more disparate.
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. Sectors such as industrial, medical office, and apartments present a dramatically different trajectory than more troubled sectors like lodging and malls.
2. Investors are seeking alternative sources of income.
The pandemic has broadly ensured that rates will remain lower for longer. But real estate may still offer investors the advantage of tax-efficient, stable yields. Real estate managers have the ability to secure long-term leases with contractual rent increases, which helps protect in-place income and embeds future growth.
3. Relative value in a volatile market is increasingly critical.
Real estate is showing strong relative value versus traditional markets. For instance, the spread between direct real estate and U.S. Treasury yields has grown over the last few years and is significantly wider than the historical average. We believe this signals an attractive investment opportunity.
Positioning a real estate portfolio for a pandemic
We look for several key factors when building a real estate portfolio with the capacity to exploit current pricing opportunities and take advantage of post-coronavirus real estate trends:
- Material exposure to sectors with post-pandemic tailwinds, such as industrial, housing, and medical office
- Low leverage, which may reduce volatility and downside risk
- Long-term leases, particularly very limited lease expirations over the next two years
- High occupancy rates
- No material exposure to hospitality, gaming, leisure or senior housing
- Disciplined city selection to improve liquidity and resiliency through cycles
In this issue
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.
Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
A word on 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 and volatility than other portfolios that are more diversified and its value may be substantially affected by economic 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, and the possibility of substantial volatility due to adverse political, economic or other developments.
Nuveen provides investment advisory services through its investment specialists.
This information does not constitute investment research as defined under MiFID.