In its 2020 outlook, Nuveen says there continues to be value in real estate markets, particularly in income generation assets. However, while risks of an unexpected rise in interest rates have waned, a material economic slowdown would hurt real estate. In addition, regulatory changes in some European housing markets could also present risks, Nuveen warned.
Mike Sales, Head of Nuveen Real Assets and Real Estate, at Nuveen, explains:
“Pockets of the retail market are proving unloved by occupiers and investors alike, with changes in consumer patterns, e-commerce and technological advancements challenging how, where and when we consume. The office sector is adapting to the growing presence of flexible space operators and a more discerning tenant base; but overall demand and real estate performance has been challenged by economic headwinds and limited development.
“We continue to favour defensive growth areas that produce solid income. In particular, we like alternative real estate sectors such as medical technology locations (which benefit from a global aging population), data centers (which should benefit from the launch of 5G networks) and multifamily housing (as co-living trends are on the rise). Across all sectors, we are putting environmental sustainability at the forefront of our investment strategies.”
Nuveen says a consistent theme is investment in “global cities” that offer scale, growth, sustainability and resilience. In Europe, Nuveen is focused on housing, student accommodation and impact investing, while in the US, Nuveen likes niche sectors, such as life sciences and data centers.
Brian Nick, Chief Investment Strategist at Nuveen added:
“Income-producing alternatives will become a more valuable part of an asset allocation given our expectation that returns on traditional stock and bond portfolios will be lower. Policy risks remain, and central banks are low on ammunition to confront an unexpected slowdown. But investors who are paralysed by the U.S. election or other sources of policy uncertainty are likely overestimating the risks. The chances of an escalating trade war or a messy Brexit have fallen, while the help markets are receiving from easier financial conditions may just be kicking in, clearing the path for growth in the year ahead. The bottom line is that the next decade could be tougher for investors than the last 10 years. But that doesn’t mean we think investors should head to the sidelines.”