This article is from the Australian Property Journal archive
PRIVATE real estate markets may be hitting a tipping point globally, with more positive themes emerging in the asset class despite ongoing challenges in the office sector.
According to Nuveen’s Global Investment Committee outlook for Q2 2024, after strong headwinds for real estate over the last 18 months, the asset class looks to be in a bottoming process.
Nuveen has upgraded its view on private real estate from underweight due to stabilising interest rates.
“This shift does not represent an all-in endorsement, especially given sustained woes in the office property market,” said Saira Malik, chief investment officer at Nuveen.
“But we have taken note of a trend toward fair-to-inexpensive costs for new real estate transactions, improving investor appetites in the real estate space and a number of intriguing investment ideas in select sectors.”
Fundamentals are broadly positive for public real estate, especially with a more promising interest rate landscape.
With private real assets are benefitting from the same trends, with opportunities in agribusiness investments, such as contract manufacturing for the quick-serve restaurant sector.
Straddling both infrastructure and real estate, data centres are enjoying strong growth prospects, particularly due with the rise of AI-related innovation.
In Australia, construction times for new data centres are lagging due to dwindling supply of suitable land and ongoing material shortages remain. With new Australian data centre supply is now fully contracted, also due largely to rapid cloud adoption and AI demand.
With ASX-listed data centre operator NextDC recently launching a $1.32 billion raising to develop and boost facilities in Sydney and Melbourne.
While housing for seniors and healthcare-related properties were the preferred choices in real estate.
“Two areas we highlight as particular opportunities are U.S. medical office and global senior housing properties,” said Carly Tripp, global chief investment officer and head of investments at Nuveen.
“Medical offices enjoy low vacancy rates, a restrained supply pipeline and the demographic tailwinds of an aging population. Senior housing benefits from the same demographics, and we believe fundamentals are improving given the slow pace of new construction.”
While farmland outlooks are generally positive for long-term investments, relative yields aren’t currently attractive but the sector benefits from structurally higher inflation trends and growing food scarcity.
In Australia, farmland total annualised return was at 11.29% for Q4 2023 with this quarter seeing a return to positive performance after two consecutive periods of negative results.
“We continue to favor real estate debt over equity, as the interest rate environment has stabilized, lenders have decent pricing power and rate cuts appear on the horizon,” added Tripp.
