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Nuveen: nimble and informed equity can capitalise on structural-driven sectors in the late cycle

Exposure to the European housing sector, including student accommodation, hotels and healthcare, are sought by investors who are keen to access the previously resilient and perceived future robustness of performance.

Stefan Wundrak, Head of Research, Europe, at Nuveen Real Estate, explains:

“Pan-European residential opportunities are limited, given the nascent market dynamics outside of the established German and Dutch markets, whilst an expanse of Purpose-Built Student Accommodation (PBSA) beyond the UK, which lacks adequate provision, can offer compelling returns versus the more established sectors.

“An understanding of socio-cultural and economic differences across Europe is strategically pivotal, whilst a collective under-supply of residential offerings and a growing demand for healthcare from an aging population complements investor preferences for these markets.”

As the office sector has been disrupted by flexible office providers with its increasing focus on the end-user experience, the residential sector will similarly have to provide a solution to the challenges of affordability, desire for community and convenience of tomorrow’s workforce, argues Nuveen.

“This is where opportunity exists for nimble and informed equity, by partnering with best-in-class operators and developers will add value to any proposition and help to future proof valuations,” says Wundrak.

Any notable yield spread for European residential sub-sectors has largely been eroded for standing assets. There is a pricing variance between Northern and Southern Europe. For example, 100bps for PBSA largely reflects the varied maturity of the asset class, investor base, and associated borrowing costs.

The sectors’ liquidity and sophistication should improve over the long term with residential forming a much greater proportion of a multi-sector portfolio. Our residential strategy aims to offer diversification and value-add returns. This can be through forward-funding, forward commitments or a build-to-core philosophy in the right location.

Wundrak continued:

“In all its guises, the housing sector appeals to investors who are attracted by past performance and projected resilience. Challenges include achieving scale and operator efficiencies.

“Pricing reflects that European markets are at different levels of sophistication and maturity. There is an undersupply of purpose-built build-to-rent, student housing and healthcare assets across Europe. Pricing is keen but value-add returns are achievable through forward-funding and build-to-core strategies.”

james.wallace@realassetmedia.com