Perspectives in today’s real estate market

OPINION PIECE. PLEASE SEE IMPORTANT DISCLOSURES IN THE ENDNOTES

Perspectives in today’s real estate marketNuveen Real Estate Strategic Insights

Q3 2021

2Perspectives in today’s real estate market


Investment involves risk, including loss of principal. The value of investments and the income from them can fall as well as rise and is not guaranteed. Changes in the rates of exchange between currencies may cause the value of investments to fluctuate.Real estate investments are subject to various risks, including fluctuations in property values, higher expenses or lower income than expected, and potential environmental problems and liability. Please consider all risks carefully prior to investing in any particular strategy. A portfolio’s concentration in the real estate sector makes it subject to greater risk and volatility than other portfolios that are more diversified and its value may be substantially affected by economic events in the real estate industry. International investing involves risks, including risks related to foreign currency, limitedliquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic or other developments. Any assumptions made or opinions expressed herein are as of the dates specified or if none at the document date and may change as subsequent conditions vary. In particular, this document has been prepared by reference to current tax and legal considerations that may alter in the future. This document may contain “forward-looking” information or estimates that are not purely historical in nature. Such information may include, among other things, illustrative projections and forecasts. There is no guarantee that any projections or forecasts made will come to pass.

A word on risk



Next 12 months

Global real estate outlook

Note: ‘Alternatives’ refers to real estate driven by alternative housing, healthcare and technology in the U.S./Asia Pacific and real estate driven only by alternative technology in EuropeSource: Nuveen Real Estate

Negative

Neutral

Positive

Overall RetailIndustrial/Logistics Housing Office

Real Estate debt Alternatives

U.S.

Canada

U.K.

France

Germany

Spain

Australia

China

Japan

South Korea



Real estate headwinds, turbulence, and tailwinds

TAILWINDSTrends that favor demand

TURBULENCEOpportunities and risk

HEADWINDSChallenges for real estate

• Online shopping supporting increased demand for modern last mile and distribution facilities

• Scientific discovery and innovation boosting demand for life science space

• Aging populations creating opportunities in healthcare real estate such as Japan, China and Europe

• In the U.S., the Netherlands and Scandinavia aging Millennials forming households is creating opportunities in suburban real estate --- particularly with increased WFH adoption

• Continued growth in U.S. sunbelt markets due to cost-of-living, weather, and favorable employment environment

• Europe is leading the Green investment boom generating investment opportunities across property types.

• Transformation of digital economy is creating opportunities in data centers

• The future of the office is still uncertain, creating both opportunities and risk in the sector

• The extent that business and leisure travel return creates unknowns in the hospitality sector

• Net Zero Carbon requirements may lead to stranded assets, which cannot be upgraded

• Slowing (and in many countries declining) working age population growth impacting economies and real estate usage

• Global climate change is creating additional risks in many top global cities

• Diverging wealth and resultant political instability is creating a more challenging political environment for landlords

• Ecommerce and shifting consumer preferences are creating challenges for traditional retail

• The adoption of working from home could put long-term pressure on Class B/C offices.

• Profitability challenges in Europe due to excessive land prices and rising construction costs



Inflation has picked up markedly in the U.S. and Europe posing a new risk to real estate investments. However, the uptick is expected to be transitory.

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Global economies support the recovery

Range Mean

Keeping an eye on inflation risks

Source: Consensus Forecasts, May 2021



Global capital continues to target real estate as the sector emerges in good shape from the pandemic. The strongest recovery came from the U.S. from very low 2020 levels, while Europe and Asia were holding up better in 2020 and hence experienced a lower increase from higher levels

Appetite for global real estate set to strengthen again this year

Source: Real Capital Analytics (RCA), 2021

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Global property investment by region (billion US$)

▬ EMEA

▬ Asia Pacific

▬ Americas



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Property remains good value in many global cities

Source: Source: PMA 2021, Oxford Economics 2021, Nuveen Real Estate Research analysis, Q1 2021

riskier

Global cities real estate continues to offer attractive income returns compared to the respective bond markets. All U.S. markets and the majority in Asia and Europe offer relatively better value compared to bonds than over the last 10 years on average.

Spreads with gov. bonds, current vs 10-years 2011 – 2020, offices, %



The risk/return analysis (sharpe ratios) for office investments, the globally most aligned property type, shows strong results for cities from each of the key global regions. Asia-Pacific markets offer the highest number of well placed cities. U.S. cities are notably absent from the bottom quartile, while European and Asia Pacific (APAC) are spread over the entire scale, implying that city selection is of most important outside the U.S.

Risk return profile of office cities

Source: Data available for 59 centers.: source PMA, Nuveen, Spring 2021.

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Sharpe ratios, prime offices, 1995 – 2020

Average

N. America Europe Asia Pacific



Combining cities with different characteristics enhances diversification. The analysis shows that APAC and second tier cities in any region offer best diversification potential. That means from a diversification vantage point a global portfolio should ideally have exposure to Asia, the U.S. and Europe, while not be limited to the biggest gateway cities.

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Average performance correlation with all other centers (offices, 1995 – 2020)

Global diversification advantage

Source: PMA, Nuveen Real Estate 2021. NB Top 20 most liquid cities are highlighted

Top 20 most liquid cities highlighted in green



Careful city selection enhances diversification

Source: PMA, Nuveen, 2021.

Being one economy, U.S. cities tend to be more correlated with each other than cities within either Asia Pacific or Europe, which are spread over many countries. There is significant diversification potential within each region, but best results are achieved constructing portfolios across the globe. Some outlier cities in Europe are particularly useful to diversify a U.S.-dominated portfolio.

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Total return correlation coefficient between cities (bottom city pairing: least correlated; top city pairing most correlated), 1995 – 2020

LA - NYCBoston-Oslo LA - Brisbane Barcelona - Lisbon

Madrid - OsakaSydney - Osaka

Houston-Atlanta

Houston - Manchester

Miami - Seoul

Dusseldorf - Manchester

Beijing - OsakaLisbon - Beijing

Averagecorrelation



Asia Pacific



Growth fears on rising infections, hopes on rising vaccinations• Growth risk has risen in Q3 as a result of increasing infections across the region, but rising vaccinations

will help to mitigate downside and provide legs to improvement heading towards year-end— Consumer environment to weaken in the current quarter as lockdowns dampen spending while production is

still underpinned by positive global trade outlook— Ramp up in vaccinations will help mitigate downside risks, as economies steadily ease restrictions in the

coming quarter; at more than 80% fully vaccinated, Singapore looks to live with the endemic

• Monetary policy outlook to diverge but rates to stay near cyclical lows— Bank of Korea has raised rates for the first time since the onset of the pandemic to counter macroprudential

risks, with another rate hike expected this year. Reserve Bank of Australia is expected to lift rates above cyclical lows before the end of 2022

— Most other regional central banks are likely to adopt a more dovish outlook, reflecting an uneven growth outlook even as employment conditions have started to stabilize

• Capital market sentiment remains very strong, due to hot money flows and low financing costs— Weight of capital creates investment challenges, as ongoing price tightening drives desperation and lower

target returns while occupier risks remain elevated across selected sectors and geographies

• Focus on resilience and income to mitigate tail-end risks and medium-term rate tightening— New built modern last mile and distribution centres in Greater Tokyo and Seoul provide attractive income

opportunities, as do multifamily (including senior living) in Tokyo and east coast Australia— Ride on rental growth cycle in Singapore office; flight to quality in Australia offices to persist on narrowing

pricing gap to logistics

Asia Pacific overview



Income resilience plus rental growth will help mitigate pricing risks

2021 brings acceleration in structural trends

Source: RCA

Singapore office takes the lead• Muted medium-term supply and rising tech occupier demand

will complement an optimistic growth outlook to drive rental growth in Singapore over the next 3-4 years

• Hong Kong to lag recovery on supply surge, particularly in Central CBD

• New regulatory actions are unlikely to change tech companies’ office demand in Tier-1 Chinese cities in the long term

Focus on income-anchored logistics assets• Investor demand for logistics asset is reflected in fundraising

volumes and pricing dynamics• Structural factors and post-lockdown behaviour suggest logistics

demand may be more sustainable in APAC, whereas shortage of high-quality assets accentuates the demand-supply imbalance in markets such as Seoul and Tokyo

Cyclically neutral

Cyclically unsupportive

Cyclically supportive

Hong Kong office

Seoul retail

Singapore office

Tokyo multifamily

Seoul office

Singapore retailShanghai/Beijing retail

Sydney/Melbourne

student housing

Tokyo office

Sydney/Melbourne retail

Tokyo retail

Seoul logistics

Tokyo logistics

Hong Kong retail

Sydney/Melbourne office/logistics



Expansion and hiring plans in this occupier group were uninterrupted by the health crisis, including demand for office space. Winners are Singapore, Tier-1 Chinese cities and Seoul.

Office: some markets offer emerging value play

Source: RCA

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Property acquisitions by technology firms



Limited supply will complement stock withdrawal and rising tech demand to position the Singapore office sector for medium-term outperformance

Focus: Singapore office house view

Source: Nuveen Real Estate, 2021

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Singapore Office (Grade A) Singapore Retail (Prime) Singapore Logistics (GradeA)

Core returnsIncome Return Capital Return

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Singapore Office (Grade A) Singapore Retail (Prime) Singapore Logistics (GradeA)

Core plus returnsIncome Return Capital Return 0.00%

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Income yield Capital return Leverage Tax IRR

Waterfall chart (Singapore office)

Increase Decrease

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Change of occupier composition is accompanied by shifting logistics/industrial space requirements. Rising occupier cohorts are after last-mile delivery facilities located in densely populated residential and commercial districts.

Logistics: market and asset selection is key to delivering long-term value

Source: JLL, 2021

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Asia Pacific logistics take-up by occupier-type

Logistics & Distribution

Retail

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Professional & Consulting Services

Mining & Construction

Wholesale

Technology, Media, and Telecom

Others



Europe



The recovery is gaining pace, gaining pre-COVID output levels sooner than previously expected• Germany and most Northern European economies have recovered faster than expected, regaining

pre-pandemic levels in the course of 2021. Spain, Italy and the U.K. are expected to need until early 2022. Southern Europe is suffering from lower levels of summer tourism, while the U.K. is held back by Brexit related issues.

• Industrial and apartment markets have weathered the storm very well with values rising above pre-pandemic levels. The office market has held up despite home working leaving offices empty for more than a year. Investors believe that high quality offices in good locations will remain in demand, a thesis supported by early evidence. The retail market continues to suffer and will not bottom out before the end of the year. Grocery and convenience are the clear winners. Important to note that the deep capital declines in U.K. retail are not mirrored in any other European market.

• Investment markets have shown signs of life in the second quarter 2021. The U.K. saw strong investment inflows for the first time since the Brexit vote in 2016. Germany and France continue to benefit from buoyant domestic markets as well as cross border investments. Retail hasn’t recovered pre-pandemic levels, while logistics and residential activity is higher then anytime since before the GFC. The capital rotation into alternatives is underway, but held back by lack of available product.

Europe view



Key cities are set to continue outperforming second tier cities and national averages. Fastest growth remains concentrated in the North and West of the continent; generating demand for real estate.

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Total population growth rates 2010’s to 2020’s

Europe’s fastest growing cities are not the biggest

Source: Eurostat, Oxford Economics, Nuveen, 2021

3 largest European cities



A rising share of disposable income is controlled by the healthy and active recently-retired, the fastest growing demographic. Over time it will fuel continued growth in demand for medical services and assisted living.

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Retirees will drive demand for health related real estate

Source: Eurostat, Oxford Economics, Nuveen, 2021

Retired and labour force growth rates 2010’s to 2020’s (bubble size represents total number)



While market leasing activity remains far from normal, we are beginning to see signs of recovery. In terms of future performance, we expect prime rental growth in 2021 in a few lead markets such as Munich, Hamburg and Paris CBD.

European office

Source: Nuveen Real Estate Forecasts, Summer 2021

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Expectations for a post pandemic spending boom are gathering pace. April retail sales data broke all records with the European average growing by 24% year-on-year (France, Spain & Italy closer t0 40%). Convenient, grocery-anchored retail parks have recovered well in terms of footfall and remain a strategic pick in light of the pandemic and ongoing structural changes.

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Retail slowdown after initial bounce due to Delta variant concerns

Source: Macrobond, July 2021



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EU carbon market: pricing forecast (€ per t/CO2)

€53 July 2021

Decarbonisation efforts and carbon pricing could lead to rising transportations costs, favouring logistics locations which help to minimise the distances goods have to travel. Global divisions of labour and terms of trade may have to be rethought with an eye on reducing transport distances and CO2 emissions. Existing locational advantages such as being close to infrastructure, consumers and production are likely to become even more pronounced. Locations that mainly rely on cheap labour to attract logistics businesses will be less well placed as a result.

Logistics: prepare for decarbonization effects on locations

Source: London School of Economics (Case for carbon pricing, 2011), European Union, 2020



United States



Uncertainty remains as COVID-19 lingers, but there are signs of strength in the property markets and with consumers

Primary sector updates• Vacancy in the U.S. office market has continued to rise as

businesses relinquish space amidst continued uncertainty, but demand losses are moderating. Gross leasing activity in the second quarter was above its pre-COVID level for the first time since the beginning of the pandemic.

• The industrial market remains very strong, with net absorption at record levels over the past year and vacancy levels back near record lows. Rent growth and investor interest remain strong -for good reason.

• The apartment market has seen record demand and rent gains over the past several months, with annual rent growth now positive in every major market. Concessions are back to normal levels, although central business district apartments are still having to do a bit more work to lure tenants back than in the suburbs.

• Strong support from the U.S. government has helped buoy the retail sector, and the pace of store closures has slowed to a level not seen in five years. Historic oversupply and the impact of continued ecommerce adoption are still headwinds for the sector, but there are pockets of strength and opportunity.

Insights• Suburban population growth is outpacing urban areas in most

markets around the country, and the Sun Belt continues to outshine the rest of the country in attracting newcomers.

• Some of the best performing property types include self-storage, industrial, and manufactured housing. Many of the alternative sectors have strong prospects, further supported by public market early-indicators.

• Despite record valuations in many sectors, U.S. commercial real estate is providing good value relative to bonds.

• National Institute of Health (NIH) and venture capital funding continues to propel the life sciences industry throughout the pandemic.

United States view



Historically, expected returns on direct real estate have exceeded those on long-term Baa-rated corporate bonds by 149 bps and have been roughly in line with riskier high-yield bonds. Currently, spreads are near or at all-time highs. Real estate is cheap relative to corporate bonds.

U.S. Real estate provides value relative to bonds

Source: Bloomberg, Green Street Advisors

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CRE vs. high-yield bondsReturn Spread Trailing Average Spread



The sharp drop in consumer sentiment in August highlights virus worries and should not be viewed as a read on the economy. In a similar lens, the decline in July’s retail sales is distorted by spending patterns shifting from goods to services. Both retail sales and personal consumption expenditures are well above pre-COVID levels.

Recovery continues despite volatile consumer

Source: Bloomberg

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Commercial property values are increasing at a rapid clip relative to pre-pandemic pricing with industrial and non-traditional property sectors leading the way. Only lodging, office, and high-quality mall pricing remain below.

Most private market values up vs. pre-COVID

Source: Green Street Advisors

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Green Street commercial property price indexes

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Green Street Advisors recently conducted a study to highlight the effectiveness and predictive power of asset value premium/discount signals in the public market. They found that sectors trading at relative premiums exceeding 10% witnessed outsized appreciation in the ensuing year of about 9%. Sectors trading at similar-sized discounts underperformed by approximately 7%. Their study also confirmed that false signals were rare as large premiums or discounts to asset values were followed by directionally similar moves in property prices about 85% of the time.

Public market signals outperformance in non-traditional sectors in the year ahead

Source: Green Street Advisors, NRE Research

-7% 9%

22%

94%

0%20%40%60%80%100%

-10%-5%0%5%

10%

GAV Discount >10% AboveAverage

GAV Premium >10% AboveAverage

1-year forwardCPPI Change (L) % Outperformance (R)

-24%

27%

5%

99%

0%20%40%60%80%100%

-30%-20%-10%

0%10%20%30%

GAV Discount >10% AboveAverage

GAV Premium >10% AboveAverage

5-year forwardCPPI Change (L) % Outperformance (R)

Public market premium lead private market pricing

-30%

-20%

-10%

0%

10%

20%

30%

Cel

l Tow

er

Life

Sci

ence

Dat

a C

ente

r

Ret

ail N

et L

ease

Col

d St

orag

e

Man

ufac

ture

d H

omes

Sing

le F

amily

Ren

tals

Mal

ls

Indu

stria

l

Self-

Stor

age

Gam

ing

Net

Lea

se

Sunb

elt M

F

Strip

Cen

ter

Med

ical

Offi

ce

Coa

stal

MF

Lodg

ing

Stud

ent H

ousi

ng

Offi

ce

Wes

t Coa

st O

ffice

New

Yor

k O

ffice

Premium/Discount to asset value by sector as of Sep 21Blue bars represent non-traditional property sectors



Across most markets in the U.S., growth in the suburbs is outpacing urban areas. In both urban and suburban areas, the Sun Belt is seeing the highest levels of population in-migration. Outside the Sun Belt, many urban areas are expected to see negative net migration in 2021.

Suburbs are outpacing urban areas nationwide

Source: StratoDem Analytics, BLS, US Census Bureau

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Aust

in

Tam

pa

Ral

eigh

Wes

t Pal

m B

each

Las

Vega

s

Phoe

nix

Orla

ndo

Nas

hville

Jack

sonv

ille

Cha

rlotte

Seat

tle

Portl

and

San

Anto

nio

Dal

las-

Fort

Wor

th

Okl

ahom

a C

ity

Indi

anap

olis

Hou

ston

Den

ver

Pitts

burg

h

Fort

Laud

erda

le

New

Orle

ans

Atla

nta

Col

umbu

s

Sacr

amen

to

Mem

phis

Ric

hmon

d

Min

neap

olis

Loui

sville

Salt

Lake

City

Cle

vela

nd

Mia

mi

Oak

land

Bost

on

Milw

auke

e

Balti

mor

e

Phila

delp

hia

Kans

as C

ity

Prov

iden

ce

San

Die

go

Cin

cinn

ati

Los

Ange

les

Det

roit

St. L

ouis

Virg

inia

Bea

ch

Was

hing

ton,

DC

San

Fran

cisc

o

New

Yor

k

San

Jose

Long

Isla

nd

Chi

cago

Estimated net migration in 2021: urban vs. suburban

Sunbelt West Midwest Northeast Bars: Suburban Dots: Urban



All information is sourced by Nuveen Real Estate. This material is provided for informational or educational purposes only and does not constitute a solicitation of any securities in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement. This material may contain “forward-looking” information that is not purely historical in nature. Such information may

include projections, forecasts, estimates of yields or returns, and proposed or expected portfolio composition. Moreover, certain historical performance information of other investment vehicles or composite accounts managed by Nuveen may be included in this material and such performance information is presented by way of example only. No representation is made that the performance presented will be achieved, or that every assumption made in achieving, calculating or presenting either the forward-looking information or the historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein by way of example.This material is not intended to be relied upon as a forecast, research or investment advice, and is not a

recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Nuveen to be reliable, and not necessarily all-inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. Company name is only for explanatory purposes and does not constitute as investment advice and is subject to change. Any investments named within this material may not necessarily be held in any funds/accounts managed by Nuveen. Reliance upon information in this material is at the sole discretion of the reader. Views of the author may not necessarily reflect the view s of Nuveen as a whole or any part thereof. Past performance is not a guide to future performance.

This information does not constitute investment research as defined under MiFID.Issued by Nuveen Real Estate Management Limited (reg. no. 2137726), (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3BN) which is authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. YOUR CAPITAL IS AT RISK.Nuveen Real Estate is a real estate investment management holding company owned by Teachers Insurance and Annuity Association of America (TIAA) . Nuveen Real Estate securities products distributed in North America are advised by UK regulated subsidiaries or Nuveen Alternatives Advisors, LLC, a registered investment advisor and wholly owned subsidiary of TIAA, and distributed by Nuveen Securities, LLC, Member of FINRA and SIPC. Nuveen, LLC ("Nuveen") provides investment advice and portfolio management services through TIAA and over a dozen affiliated registered investment advisers. Nuveen Real Estate is an investment affiliate of Nuveen.

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