As real estate markets rebound from recent challenges, McGibbon, Nuveen’s global head of real estate, believes that a tactical focus on specific sectors, supported by a keen understanding of mega trends, can “definitely” generate alpha for savvy investors.
On a recent episode of Relative Return, McGibbon emphasised that while a diverse portfolio of real estate investments is beneficial, it shouldn’t be the only strategy employed in this market.
“It really depends on the investor’s view and whether or not they have a view, or whether or not they want to have a view,” he told InvestorDaily.
“Some investors would prefer to go into a diversified fund that takes the best ideas from a platform and makes the sector weightings, the regional weightings, the debt-to-equity weightings, and the use of leverage, and tries to optimise total return to a strategy. Sometimes it’s nice to put it on autopilot, if you can find a good manager that you trust and who’s going to make good decisions.”
He noted that while this diversified approach can help mitigate risk, informed investors who closely monitor mega trends and back their insights with thorough research have significant potential for outperformance through tactical single-sector investments.
Highlighting the dynamic nature of the market, McGibbon pointed to the recent ups and downs of the logistics and retail sectors.
“In the period from 2005 to 2015, regional malls were actually the best-performing sector, and then in the last 10 years, they’ve been one of the worst-performing sectors as well,” McGibbon said.
“COVID didn’t help when they were all shut down and, in some ways, retail was ignored.”
However, they’ve since “sprung back”, he said, as people increasingly seek in-person shopping experiences for their daily needs.
In contrast, while retail was sluggish, especially during the pandemic, the logistics industry flourished, riding the wave of increased online sales and establishing itself as a standout performer in the market.
“For the last 10 years, logistics has been the best-performing sector, because while retail was losing to online sales, logistics was benefiting from that, where those goods had to be stored and shipped … Rents went up a lot and total returns were great,” McGibbon said.
“I think, if you have the capabilities and you can read the mega trends and the tailwinds and figure out which sectors have those tailwinds, then you can definitely create alpha by making sector-specific bets.”
Despite this optimistic outlook, McGibbon cautioned investors about the office sector, which he believes still presents risks.
“The office sector is in different stages in different parts of the world. For instance, in markets like Korea, Japan, Singapore, it’s very tight. Return to office is almost back to where it was pre-COVID,” McGibbon pointed said.
Meanwhile, other markets, such as the US, are experiencing different trends.
“In other places like the US, it’s still really yet to be seen how bad it gets and what the return to work looks like compared to pre-COVID numbers,” he told InvestorDaily, noting that general trends point to declining demand for office spaces.
“Over the next five to 10 years, that’s going to definitely have an impact on returns and potential losses,” he said.
To hear more from Chris McGibbon, click here.
