Dan Buchanan: Welcome to the latest in our Aberdeen Standard Investments Closed-End Fund podcast series, where we catch up with our closed-end portfolio managers and gain some perspective on these complex market conditions. Today we are focusing on global real estate, where the manager of the Aberdeen Global Premier Properties Fund ticker symbol AWP, Svitlana Gubriy. She's going to be talking about global REITs, and redefining the real estate thematic investing. Svitlana, welcome.
Svitlana Gubriy: Thank you, Dan.
Dan Buchanan: Looking back at 2020 Svitlana, how do you assess the performance of the real estate sector?
Svitlana Gubriy: 2020 was a year unlike any other. I think you would agree with that. The year has accelerated changes in our society, and change the way people live, work and play. Inevitably, it had a significant impact on real estate. We had a fast track move towards e-commerce, working from home, and we also witnessed expansion of the digital entertainment and education platform and that creates challenges for many businesses. But at the same time, it creates opportunities that other sectors and other businesses were able to capitalize on. The cleaner winners of this new trend became digital infrastructure, cell phone towers, data centers and logistics as we increasingly relied on those sectors to deliver services that were critically important to our day-to-day life.
But on the other hand, we saw consumer facing sectors retail, face to face entertainments, hotel were the most effective and they faced significant declines in relations and returns in 2020. What was interesting about 2020, the difference in performance between the winners, the sectors that performed well, again, digital infrastructure, logistics, and the laggard. retails and hotels, that difference was over 40% in 12 months, which is quite unusual. Another interesting of variation looking back at 2020, global REITs underperformed growth focused global equities, and now they're trading at relatively attractive historical valuations.
[Informal Talk]
Dan Buchanan: Now, Svitlana the question is what do those events of 2020 mean for real estate investing going forward?
Svitlana Gubriy: It's a very good question, Dan. We expect a lot of implications for real estate investing. Today, I want to focus on main two things. First of all, as you can imagine, real estate is a reflection of our economy and society. Over the last several years there have been significant sector changes within real estate, and all those changes have very important implications for investors.
For example, traditional course investment sectors, offices and retail have seen their share of REIT index declining. For example, today offices and retail represents only 18% of the US REIT market. At the same time, new sectors, for example, data center towers became a very important part of the investment universe. If you go back 10 years ago, it was -- there were no towers and data centers were only small part of the investment opportunity set. The list of real estate sector allows investors to access those secular growth opportunities and look beyond traditional real estate sectors.
The second point that I want to focus on is the fact that the economic and social themes drive long term value place and in real estate now more than ever. If you are thinking about real estate investments for long term, those things will determine your total return. I want to talk briefly about two examples and what it means -- what those examples mean for the real estate investors. One is e-commerce, e-commerce became a headline grabbing news for the last 12 months in particular. If you think about it, e-commerce fundamental changes for the consumer preferences made industrial and logistics real estate an obvious winner.
But if you, again, if you take a step back and think about e-commerce ecosystem in general, it's much more complicated than industrial and logistics. It includes a very massive support infrastructure from cell phone towers that transmit orders from your mobile device to data centers where your order and payment is processed. Today, more than one third of the listed real estate is a part of the digital e-commerce ecosystem, and one way or another involved in delivering that package that you ordered online.
The second theme, which is becoming more and more important, is demographics. Today, we see more opportunities in the healthcare sector globally, and growth in what we call other residential. One interesting and relatively new area in this other residential category is single family housing. It is becoming a fast growing sector especially In the US, but we see examples of that globally as well. Demographics is a big driver behind this trend.
We see millennial generation moving away from the urban areas to suburbs as their families grow and this trend of out migration has accelerated in 2020, with people swapping New York, San Francisco, London lifestyle to the country and suburban living. Another interesting theme that we are investing across all our listed real estate funds is life science sector. That's another area of real estate that became very important in 2020 given all the developments and headlines regarding development of vaccines in particular. As a listed real estate investor in real estate companies you can get access to the returns in that sector.
Dan Buchanan: Svitlana, we expect these thematics backed by changes in society will be long term drivers of real estate returns. I’m curious what about short and medium term opportunities in 2021? Could you comment on that?
Svitlana Gubriy: Sure, [inaudible 00:16:28] global vaccine rollout despite some stops and goes in different countries, will be driving the economic recovery. REITs are well positioned to benefit from this macro backdrop. We expect that the sectors that we just discussed, sectors exposed to structural and long term growth trends, e-commerce digitization of society, lifestyle, will continue to benefit from strong supportive tailwind.
For example, if you take data centers, the COVID dynamics has created a new normal in data center infrastructure that will go beyond 2020. With that acceleration in data center adoption among industries that were behind previously, for example, governance or some of the retailers, and they will do that because of the necessity rather than its luxury.
Additionally, if you think about organizational infrastructure, companies will look at IT spent as not just an expense but as a driver of future revenues. It will lead to improved IT decision making and improved data center utilization as a result. We do view the current environment to act as another force, another step function in the growth of the data center in digital infrastructure real estate industries.
At the same time as the economy recovers we expect that the sectors that were hit hardest in 2020 to benefit from the economic re-opening. Hotels, leisure for example, gaming in the US, healthcare, senior housing, will be the sectors that will enjoy growth in occupancy, rent selection and, again, as a REIT investor we are positioned to benefit from that.
The area that probably faces more uncertainty and creates a lot of debate among the investors is office sector. We expect adoption of working from home and flexible working to vary across the globe. We do expect differences because of the cultural and support infrastructure reasons, leading to different level of penetration of working from home across the world.
For example, we expect in Asia Pacific, working from home to be less prevalent than in London, New York, or San Francisco. As an investor we can be selective and take the right folks in the areas that will be mispriced because of the lack of consensus among the investors. To summarize, I do think that while 2020 has proven to be not a very easy year for real estate, but at the same time we think that accelerated long term themes will allow investors to benefit going forward.
Dan Buchanan: Thank you Svitlana for those insights today and thank you especially to our listeners for tuning in. You can find out more about the fund at www.aberdeenawp.com. I'm Dan Buchanan with Aberdeen Standard Investments. Do look out for future episodes.
