As real estate markets bounce back from recent challenges, McGibbon, global head of real estate at Nuveen, believes a tactical focus on specific sectors, supported by a deep understanding of megatrends, can “definitely” generate alpha for informed investors.
In a recent episode of Relative Return, McGibbon emphasized that while a diversified portfolio of real estate investments is beneficial, it should not be the only strategy used in this market.
“Some investors would prefer to jump into a diversified fund that takes the best ideas from a platform and sets sector weightings, regional weightings, debt/equity weightings and leverage usage, and attempts to optimize the total return to a strategy. Sometimes it’s good to put it on autopilot, if you can find a good manager who you trust and who will make good decisions.
He noted that while this diversified approach can help mitigate risk, savvy investors who closely monitor megatrends and support their ideas with in-depth research have significant outperformance potential through tactical investments in a single sector .
Highlighting the dynamic nature of the market, McGibbon highlighted recent ups and downs in the logistics and retail sectors.
“Between 2005 and 2015, regional malls were actually the best performing sector, and then over the last 10 years they have also been one of the worst performing sectors,” McGibbon said.
“COVID didn’t help when they were all closed and in some ways retail was ignored.”
However, they have since “bounced back,” he said, as people increasingly seek in-person shopping experiences for their everyday needs.
On the other hand, while retail was slow, especially during the pandemic, the logistics sector flourished, riding the wave of increased online sales and establishing itself as a notable player in the market.
“Over the last 10 years, logistics has been the best performing sector, because while retail was losing out to online sales, logistics was benefiting, where goods had to be stored and shipped… Rents have increased a lot and the total has increased. the feedback has been great,” McGibbon said.
“I think if you have the capabilities and you can read the megatrends and the tailwinds and figure out which sectors are benefiting from those tailwinds, then you can definitely create alpha by making sector-specific bets.”
Despite the optimistic outlook, McGibbon cautioned investors against the office sector, which he said still presents risks.
“The office sector is at different stages in different regions of the world. For example, in markets like Korea, Japan and Singapore, the situation is very tense. The return to power is almost back to what it was before COVID,” McGibbon pointed out.
Meanwhile, other markets, such as the United States, are experiencing different trends.
“Over the next five to 10 years, this will definitely impact returns and potential losses,” he said.
To learn more about Chris McGibbon, click here.
