UBS Asset Management’s Real Estate & Private Markets (REPM) business has been investing in real estate for over 80 years, having launched its first real estate fund as early as 1943.
REPM actively manages investments of around USD 178 billion* globally and regionally within Asia Pacific, Europe and the US, making it one of the largest asset managers in real assets worldwide. Our capabilities reach across the risk / return spectrum, ranging from core to value-add and opportunistic strategies. We offer direct real estate, infrastructure equity and debt, and food & agriculture investments as well as indirect exposure to leading real estate, infrastructure, private equity and private credit managers. Investors can access our diverse product range across open- and closed-ended private funds, investment trusts, listed funds, REITs and bespoke separately managed accounts.
* Asset under management stated on gross asset values basis and includes CS, reflecting values as at 31 December 2023, where available. * Data includes commitments.
Sector forecasts
GLOBAL:
Global real estate performance in 2023 was set against a weak economic backdrop of prolonged high inflation, sharp rises in interest rates and looming fears of recession. As interest rates looked to be peaking, they were having their desired impact of curbing inflation from multi-decade highs. Throughout 2023, global real estate transaction activity remained subdued as the miss-match in price expectations between buyers and sellers and uncertainty over the outlook continued to hold back deals. In the first half of 2024, according to MSCI, investment volumes remained well below their post-pandemic peak, and capital values showed some further declines. We think that the bulk of the correction in capital values had occurred on entering 2024 and that performance will improve in the second half of the year as interest rates get cut and start to feed through to property markets, and they begin to normalize. We are most cautious on offices, which are seeing a strong bifurcation in terms of quality and location as the shift towards hybrid working sees ongoing structural change in the market. Sectors that look set to outperform include life sciences and data centers, due to strong fundamental occupier demand, as well as hotels and hospitality, benefitting from wider travel activity in the wake of the pandemic and despite rising costs, and are also set to benefit from growth in the economy.
INDUSTRIAL / LOGISTICS / COLD STORAGE:
Warehouses continues to see robust demand with structural tailwinds such as rising e-commerce penetration. Rental growth stayed positive albeit moderating as supply catches up. Australia has been the star performer in the APAC market and the tight vacancy situation is likely to continue supporting rental growth in the near term. Capital values have stayed broadly stable as its strong rental growth largely offset a sharp rise in cap rates in 2023. In other APAC markets, excluding Japan, rental growth similarly provided cushion amidst rising cap rates. Japan remains an outlier with stable cap rates due to its loose monetary policy. We remain positive on the sector’s long-term growth potential.
OFFICE:
The office sector is facing both structural (hybrid-working) and cyclical (macro slowdown) headwinds. This narrative is global but we believe its extent is smaller in this region. APAC is leading both the US and Europe on the back-to-office trend, partly driven by cultural differences and dwelling sizes. Singapore and South Korea are better positioned given limited new supply and low vacancy. Japan’s leasing activity is improving though near-term supply is elevated. Australia is the weakest in the region with high vacancy rates of low- to mid-teens. Incentive levels are likely to stay high. Nonetheless, there is a bifurcation trend consistent across APAC whereby high-quality office assets have maintained tight vacancy rates and proven to be more resilient. Looking ahead, we expect assets with good amenities, location and ESG ratings to outperform. Old buildings in less-core areas are likely to suffer more in the medium term.
RETAIL:
Valuations are less demanding for retail assets due to its past underperformance. The risk of cap rate expansions are more muted as a result. Fundamentally, occupancy costs have improved thanks to resilient household consumption and a rebound in inbound tourism. This should support a positive outlook for upward rent reversions. Rising e-commerce penetration remains a structural headwind but its impact is stabilizing. We expect a stable outlook for this sector. We think non-discretionary trade should stay resilient. Experiential retail will continue to be a focus to attract foot traffic and this could increase capex needs for retail landlords.
MULTIFAMILY:
The COVID-19 outbreak has shifted individual behavior and perception of living space. Flexible working arrangements are here to stay and offer an increasingly competitive edge to employers. This will likely continue to reallocate the real estate space requirement from office to residential. The modest construction activity during the pandemic has exacerbated the supply shortage situations. Residential rents are rising and have proven to be a good inflation hedge historically. We see secular demand drivers including shrinking household sizes and falling housing affordability. This asset class is well established in Japan, and Australia is starting to see significantly more capital commitments in this sector.
COMPLIANCE STATEMENT
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