This site has been created for exclusive use by institutional investors only and does not take into account investment objectives, financial situation or specific needs of any individual investor. Information should not be the sole basis for any investment decision.
If you are not an institutional client, consultant or financial professional and are looking for more information about mutual funds and other products at Nuveen, please visit our site at www.nuveen.com.
Past performance is not a guarantee of future performance. All investments involve some degree of risk including loss of principal. Investment objectives may not be met.
By agreeing you are confirming you are being truthful, acknowledging you have read the information above and accept the terms and conditions set out with this site and meeting the intended audience requirement for this site. Not all content on this site is appropriate or applicable for the general public and we cannot guarantee consequences with the use of this information by unauthorized or unintended users. Content on this site may not be redistributed and is for informational purposes only and does not constitute investment advice or provide a solicitation of an offer to buy any security.
Optimizing outcomes through alternatives:
Real estate offers long-term growth opportunities, in addition to diversification, stable income generation and inflation hedging. This capital appreciation potential is driven by global megatrends, such as aging populations, urbanization, technological advancement, shifts in global supply chains and rapid development in certain geographies. While private real estate has produced higher risk-adjusted returns than listed REITs, there are liquidity and diversification benefits of having both in a global real estate portfolio.
Considerations for risk factor-based investing
When considering allocations to real estate, investors often focus on diversification as the primary reason to invest in the asset class. But the diversification benefit of real estate is largely the result of the quality and security of the income stream associated with real estate investments. Commercial real estate investments benefit from contracted revenues over periods that span market cycles. Staggering leases over different time periods — similar to laddering a bond portfolio — further reduces the impact of economic cycles on income.
Global market divergence creates opportunity
Regional real estate markets reflect different levels of maturity, growth rates and stages of the real estate cycle. Performance differences across countries and regions contribute to global real estate’s ability to diversify portfolios.
Rising rents provide an inflation hedge
Real estate may provide a hedge against inflation, as both rents and property values are highly correlated with rising consumer prices.
Megatrends are deployed at the local level
Megatrends, such as aging populations, urbanization, technological advancement and shifts in global supply chains, can be drivers of long-term capital appreciation, in addition to income growth. While these trends are global in nature, real estate investors need to take a bottom-up, city-level view to building a diversified portfolio to capitalize on these long-term structural drivers. Without understanding how these trends and the associated risk factors are playing out at a local level, investors risk becoming overconcentrated in certain risk factors.
Skilled asset managers have multiple ways to add value
A real estate manager’s local relationships are essential for sourcing attractive value-add opportunities. During the hold period, managers can unlock a property’s value and generate higher rents by refurbishing or repositioning an asset.
COVID-19 impact: Durable shifts shape long-term investment strategy
While no real estate sector or portfolio is immune from the negative effects of the COVID-19 crisis, certain sectors and strategies are better positioned and will gain over the long term. The COVID-19 crisis presents an opportunity to focus on property types, cities and tenants that are less sensitive to economic and financial cycles. Real estate investors can enhance portfolio resilience by emphasizing factors such as low leverage, high occupancy rates, long-term leases and limited near-term lease expirations.
The retail and office sectors, in particular, are being reshaped by some durable changes that could emerge from the pandemic.
- Retail: The crisis is quickly exposing weaknesses in the retail sector that have been present for years. Entirely new retail concepts will be borne out of this turmoil, while antiquated models that can’t adapt will be eliminated. We expect an increasing focus on faster turnaround of space as well as more intensive asset management from owners.
- Office: A key question in the office sector is whether prolonged remote working will translate to decreased demand for office space overall, or if distancing needs will require more space per head as employees return to the office. The crisis is already accelerating demand for healthier, smarter office buildings. While we may see an end to “hot desking” and shared work spaces, co-working businesses could benefit from the need for flexible, customizable work spaces.
All market and economic data from Bloomberg, FactSet and Morningstar.
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, or liability for, decisions based on such information, and it should not be relied on as such.
A word on risk
All investments carry a certain degree of risk, and there is no assurance that an investment will provide positive performance over any period of time. Equity investing involves risk. Investments are also subject to political, currency and regulatory risks. These risks may be magnified in emerging markets. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage. In portfolios that include lower-rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are considered to be speculative, the credit and investment risk is heightened for the portfolio. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Socially Responsible Investments are subject to Social Criteria Risk, namely the risk that because social criteria exclude securities of certain issuers for nonfinancial reasons, investors may forgo some market opportunities available to those that don’t use these criteria. Investors should be aware that alternative investments including private equity and private debt are speculative, subject to substantial risks including the risks associated with limited liquidity, the use of leverage, short sales and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not suitable for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy.
Nuveen provides investment advisory services through its investment specialists.