The UBS report, released on Monday, highlighted the pandemic’s dramatic impact on everything from prime office space to retail properties. Real estate has “shifted significantly,” according to analysts led by Osmaan Malik, but some sectors are now growing strongly.
“The renaissance of the industrial sector as demand for warehousing and logistics has boomed, the emergence of technology-serving opportunities (data centers and towers), and the relative resilience and ongoing M&A in residential sectors have all contributed to strong secular growth,” they wrote.
The WFH debate
Other considerations include how much working from home, which has been boosted globally by pandemic lockdown measures, will affect prime office space. “The great WFH debate rages on, with share prices rising despite this. “Our central view remains consistent: while there may be a net reduction in demand, it is likely to be contained, as de-densification, peak occupancy, lower construction levels, and potential for change-of-use all mitigate the overall impact on market vacancy,” the analysts wrote.
While many brick-and-mortar stores are under threat from e-commerce, analysts predict that luxury malls in China will provide an investment opportunity as asset management firms consolidate and “winners take all.”
Here are some of their top stock picks, all of which have a buy rating from the bank:
The bank prefers cell tower real estate investment trusts (REITs) American Tower Corp and SBA Communications in the United States. The analysts wrote, “The industry is in the early stages of a multi-year investment cycle, and demand for wireless infrastructure and connectivity has never been more apparent.”
Prologis and Duke Realty are two other logistics and warehousing REITs that UBS likes. “We continue to recommend both due to the robust demand, rational supply, accelerating ecommerce, and the potential for inventory builds,” the analysts wrote.
The bank favors Chinese stocks such as CR Land, a luxury mall operator whose retail sales increased by 111% between February 2021 and the same month in 2019, and Longfor, a retail and residential developer with operations in around 60 Chinese cities. Both use a Transport Oriented Development (TOD) model, which means real estate is built near transportation hubs, and UBS claims Longpfor has higher margins as a result.
Swire Properties is also included due to a “promising outlook for its retail mall business in China,” as well as early signs of recovery for Hong Kong offices, according to UBS.
In the United Kingdom, developers British Land and Land Sec are short-term picks for the bank, which stated that both stocks remain undervalued. Longer term, it favors “high quality” stocks Derwent and Great Portland Estates, both of which own prime central London real estate.
UBS’s top pick in Japan is Mitsui Fudosan, which recognizes the need for mixed-use developments that combine working, living, and shopping. “The barriers between property types as places for these activities are weakening, and the company is beginning to respond,” wrote the analysts.
UBS’s “Global Real Estate Analyser” is published biannually and includes 30 analysts’ analysis of 200 stocks.