UBS Asset Management’s Real Estate & Private Markets (REPM) business has been investing in real estate for 75 years, having launched its first real estate fund as early as 1943. Since then, the business has grown steadily, expanding the universe and scope of its real estate investments and adopting a truly diversified business model. On an assets under management basis, the business is one of the leading global real estate investment managers today.
REPM’s capabilities include core, value add and increasingly opportunistic strategies on a global, regional and country basis.
These are offered through open- and closed-end private (unlisted) funds, fund of funds, individually managed (separate) accounts, REITs and publicly traded real estate securities globally. The business actively manages direct investments in the hotel, industrial, multi-family/residential, office and retail real estate sectors, as well as in farmland in the US – a business that specialises in the acquisition, management and disposition of agricultural real estate investments.
Industrial: E-commerce and supply chain efficiency continue to drive demand for industrial space across Asia. Particularly in Singapore, and in the tier one cities in China, the demand dynamics of the industrial and factory space segment have shifted towards built-to-suit and well-specified industrial and business park space. In the logistics segment, there is a growing inclination towards smaller infill space in markets where there is a high and rising proportion of online sales from businesses to consumers, and an increased focus on same-day delivery as a unique competitive edge in the crowded e-commerce segment. It is becoming increasingly apparent that on a bottom-up basis, higher quality industrial space will continue to deliver favourable rent growth and occupancy in Asia. The region’s developed markets of Australia and Japan will continue to see healthy levels of liquidity with investors attracted to the sector’s defensive and secure long-term income characteristics.
Office: The trickle-down effects of the recovering global economy have led to vacancy rates tightening to record or near record low levels in a number of markets. Most of developed Asia continues to see stable job growth which is translating directly into positive net absorption by office tenants in traditional industries such as finance, professional services and FMCG (fast-moving consumer goods). To that end, Hong Kong, Singapore and Tier 1 cities in China all saw healthy net absorption. In particular, with office supply cycle in Singapore having peaked, it is likely that the market is in the midst of a cyclical upturn. In Australia, rent growth is expected to remain healthy (in the Australian ex-resources markets) over the next two years in an environment of steady leasing demand, low vacancy and conversion of Grade B stock into other uses. The Sydney office market is set to remain one of the stronger performing markets on a global basis, particularly for existing owners where rental growth is now supporting valuations. In Tokyo, there are early signs that the market may soon feel the impact of impending Grade A supply, with longer rent-free periods being granted to large occupiers. However, on a relative basis, Tokyo’s office market is still one of the tightest in the region.
Retail: Retail property performance across Asia Pacific remains mixed. Demand for prime and CBD retail space has been steady in key cities and markets in Japan and Australia, supported by inbound tourists and demand from international retailers. High street rents in the prime areas of Tokyo remain in growth mode, as limited new supply of prime retail space provides the support for rental uplifts. The situation is similar in Sydney and Melbourne where low vacancy continues to underpin the resilience of prime retail. The emergence of the middle class in Asia, in particular China, has created a new retail driver in the form of tourist spending. Domestic consumption in most of Asia is veering towards non-discretionary spending and food and beverage. This is where the impact of e-commerce has been more muted in Asia (excluding Australia), because the dense nature of cities insulate the suburban malls from a direct substitution effect from e-commerce.
Global: The resilient appeal of global real estate is driven by a number of factors: low, albeit rising bond yields; the hunt for steady income; the importance of asset diversification; and a need for stability. Unconventional monetary policies in the form of quantitative easing and ultra-low interest rates have, in recent years, boosted the relative appeal of the asset class, while the consequential increase in capital flows has caused a surge in transactions. Volumes are now down from their peak but remain in line with long-run averages. This continued strength reflects a reluctance to let go of assets given uncertainty as to how to re-allocate capital attractively. Many markets present a price gap between buyers and sellers, with owners of real estate, even with leverage, generally under no pressure to sell while buyers are not willing to pay ever higher prices given the interest rate outlook.
Total returns globally continue to reduce as a result of reduced yield compression and capital value growth. Construction is starting to pick up, but broadly the supply side response has been muted this cycle, particularly in Europe. In the best locations, this has meant good levels of rental growth, meaning returns are not driven primarily by income. Differentiation in projected total return between markets and sectors is narrowing as the cycle extends. Income returns tend to be quite stable over time both within and across markets, while capital growth can vary tremendously depending on a market’s stage in the cycle.
Historically, rising interest rates have coincided with strengthening property returns, thanks to an improving economy and rising rents. This time is different: property returns are slowing as rates rise because a period of exceptional capital value growth driven by ultra-low interest rates and excess liquidity has come to an end. Nevertheless, global real estate remains attractive relative to other asset classes and provides the income and low volatility many investors desire. Lower leverage and less exuberant pricing for lower quality real estate also means the asset class is less at risk than in the last cycle. Returns have certainly reduced but remain in line with the long-term returns one should expect from institutional property.
This publication is not to be construed as a solicitation of an offer to buy or sell any securities or other financial instruments relating to UBS AG or its affiliates in Switzerland, the United States or any other jurisdiction. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions contained in this document have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any errors or omissions. All such information and opinions are subject to change without notice. Please note that past performance is not a guide to the future. With investment in real estate (via direct investment, closed- or open-end funds) the underlying assets are illiquid, and valuation is a matter of judgment by a valuer. The value of investments and the income from them may go down as well as up and investors may not get back the original amount invested. Any market or investment views expressed are not intended to be investment research. The document has not been prepared in line with the requirements of any jurisdiction designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this document does not constitute a distribution, nor should it be considered a recommendation to purchase or sell any particular security or fund. A number of the comments in this document are considered forward-looking statements. Actual future results, however, may vary materially. The opinions expressed are a reflection of UBS Asset Management’s best judgment at the time this document is compiled and any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise is disclaimed. Furthermore, these views are not intended to predict or guarantee the future performance of any individual security, asset class, markets generally, nor are they intended to predict the future performance of any UBS Asset Management account, portfolio or fund. Source for all data/charts, if not stated otherwise: UBS Asset Management, Real Estate & Private Markets. The views expressed are as of September 2018 and are a general guide to the views of UBS Asset Management, Real Estate & Private Markets. All information as at September 2018 unless stated otherwise. Published September 2018. Approved for global use.
News from UBS Asset Management (Hong Kong) Limited (Real Estate)
UBS Asset Management and APG Asset Management establish a new real estate investment club focused on the Japanese multi-family market download
The Japan multi-family investment club has secured USD 175 million commitment from APG Asset Management as a strategic partner The strategy seeks to capitalise on the compelling supply-demand dynamics in key Japanese multi-family sub-markets predominantly through a build-to-core strategy
UBS Global Asset Management has established an Australian and New Zealand farmland investment advisory capability.
UBS Global Asset Management announces the creation of an Australian-based full service real estate investment and asset management platform.
News from IPE Real Assets
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White Papers / Research from UBS Asset Management (Hong Kong) Limited (Real Estate)
Approaching a turning point? download
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Stay hungry but not foolish This year remains a risk-on year that will test the nerves of real estate investors. We believe market risks cannot be skirted totally, but surely can be prepared for.
The last two decades saw the best and the worst of times for real estate markets globally. Most may recall vague scenes of the global financial crisis in 2007, which are now distant memories, as the world embarked on the next stage of economic expansion.
Even though much has already been spoken about the coming Asia Pacific growth era, the investment universe is still caught in a tug-of-war between the familiar comforts of growth in the West and the alien new growth in the East.
Analysis from IPE Real Assets
CapitaLand and Ascendas-Singbridge have combined forces to create the biggest real estate manager in Asia-Pacific. Florence Chong reports
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The country’s giant institutions could transform global real estate markets when they finally move. Florence Chong reports
Growing city clusters in China and populations in ASEAN countries will create investment opportunities, writes Geoffrey Wong
Valuing estate funds on a fair-value basis can introduce financial market volatility out of kilter with the stable cash flows. Anthony Shayle, Paul Guest and Zachery Gauge explain