Global Real Estate Investing

Investing in good quality real estate globally can help you through volatile markets, provide income and act as an inflation hedge to portfolios. How can you build a diversified strategy across residential, industrial and commercial properties?

Real estate as an inflation hedge

The war in Ukraine has boosted energy prices and caused inflation to be at multi-decade highs.

A well-diversified, high quality global property portfolio can offer some inflation protection through:

  • Inflation-indexed rents; and
  • Shorter lease lengths

Taking a look at the past, periods of higher inflation have been followed by typically higher real estate returns.

This was supported by an analysis we did in 2020 which compared nominal real estate returns and inflation across 26 countries globally.

Our model showed that real estate offered a 78% inflation protection1 and up to 80% when further conditions such as real interest rates and variable property risk premium were applied.

Is real estate helpful during stagflation?

In today's scenario where inflationary pressure is high and economic growth is uncertain, allocating to real estate can also help hedge against stagflation.

While the data is limited (since the main historical episode of stagflation occurred during the 1970s), there is evidence that the US real estate markets outperformed equities and bonds when inflation is very high and growth is sluggish. Real estate returned 5.5% in real terms while equities returned 2.5% and government bonds -7.3%.

In our view, the biggest threats to real estate markets are periods of recession combined with inflation at average or below average levels. To mitigate such risks, we believe broad diversification across countries is the most prudent strategy.

Read our mid-year Panorama piece for a deep dive into the global real estate market.

US real total returns by asset class (YoY, 4Q78-1Q22)

States of the economy

States of the economy

Number of observations

Number of observations

Inflation

Inflation

GDP growth

GDP growth

Real estate performance relative to equities and bonds

Real estate performance relative to equities and bonds

States of the economy

Stagflation

Number of observations

5

Inflation

triangle-up

GDP growth

triangle-down

Real estate performance relative to equities and bonds

Outperformed both

States of the economy

Downturn

Number of observations

4

Inflation

triangle-down

GDP growth

triangle-down

Real estate performance relative to equities and bonds

Underperformed both

States of the economy

Overheating

Number of observations

3

Inflation

triangle-up

GDP growth

triangle-up

Real estate performance relative to equities and bonds

Outperformed bonds only

States of the economy

Skewed

Number of observations

33

Inflation

triangle-down

GDP growth

triangle-up

Real estate performance relative to equities and bonds

Outperformed both

States of the economy

Balanced

Number of observations

129

Inflation

triangle-up

GDP growth

triangle-up

Real estate performance relative to equities and bonds

Outperformed bonds only

This chart shows the performance of real estate relative to equities and bonds during different market environments – downturn, stagflation, skewed, overheating, balanced – since 1978 to the end of Q1 2022.

1Real Estate Outlook – Edition 1, February 2020

Building defensiveness in real estate portfolios

As challenges around global economy mount, it is important for investors to focus on defensive real estate sectors which are not as correlated to the economic cycle. These sectors include industrials, life sciences and residential.

Residential assets offers income stability across economic cycles

Residential sectors like student and senior housing have the lowest vacancy rate and stable income returns.

These niche sectors benefit from the strong socio-demographic trends like population growth and an aging population.

Life sciences is a strong defensive component of the portfolio

Life sciences is less correlated to the economic cycle. It is also a growth area, reflecting higher levels of capital inflows into the industry.

The aging population drives advancement in medicine and genome therapy, resulting in increased demand for lab space. In fact, global R&D spending by pharmaceutical companies are expected to grow at 4.2% CAGR between 2020-2026.

Strong performance in industrials expected although returns may be tempered by rising rates

Supply chain disruptions are driving businesses to be more resilient with stock levels, boosting demand for warehouse space.

While there are some concerns that the logistics sector maybe over-heated, the long-term demand remains positive.

Gain instant access to global properties with UBS Asset Management

  • 0

    years long track record

  • 0

    properties or more in strategy

  • 0bn

    assets under management in Euros

For over 10 years, we have offered investors a global multi-manager property strategy, invested in core, quality assets diversified across sectors.

The properties in our unlisted strategy are strategically located with strong occupancy rates.

At the moment, we are focused on strengthening the defensive quality of the strategy with low-cyclical sectors like residential and life sciences. Our strategy also offers a potential inflation-hedge as leases are short or indexed to inflation. Rents for about half of our underlying properties can be reset (in some measures) to keep up with inflation.

Advantages of unlisted, multi-manager real estate investing

Ways of investing in real estate

You can invest directly, through unlisted or listed vehicles like REITs

Get the best of real estate investing through an unlisted, multi-manager portfolio.

This approach offers you:

  • Higher diversification vs buying properties directly
  • Lower volatility vs buying REITS
  • Lower capital outlay vs buying properties directly

Contact our distribution partners to learn more

  • MayBank
  • Julius Baer
  • UBS Wealth Management
  • UOB

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