As property markets recover from recent challenges, McGibbon, Nuveen’s global head of real estate, believes a tactical focus on specific sectors, backed by a deep understanding of mega trends, can “definitely” generate alpha for savvy investors.

On a recent episode of Relative Return, McGibbon emphasized that while a diversified portfolio of real estate investments is beneficial, it should not be the only strategy used in this market.

“It really depends on the perspective of the investor and whether or not they have a perspective or whether or not they want to have a perspective,” he told InvestorDaily.

"Some investors would prefer to go into a diversified fund that takes the best ideas from a platform and does sector weights, regional ratios, debt-to-equity ratios and the use of leverage, and tries to optimize the overall return of a strategy." Sometimes it's nice to put it on autopilot if you can find a good manager who you trust and who will make good decisions.

He noted that while this diversified approach can help mitigate risk, informed investors who keep a close eye on megatrends and back up their insights with in-depth research have significant potential to outperform through tactical single-sector investments.

Underscoring the dynamic nature of the market, McGibbon pointed to the recent ups and downs of the logistics and retail sectors.

"In the period from 2005 until 2015 regional malls were actually the best performing sector, and then over the last 10 years they were also one of the worst performing sectors,” McGibbon said.

"Covid didn't help when everyone was closed and in a sense retail was ignored."

However, they have since "made a comeback," he said, as people increasingly look to personal shopping for their everyday needs.

In contrast, while retail has been slow, especially during the pandemic, the logistics industry has thrived, riding the wave of increased online sales and establishing itself as a notable market performer.

"Over the past 10 years, logistics has been the best performing sector because while retail has lost out on online sales, logistics has benefited from where those goods have to be stored and shipped... Rents have gone up a lot and overall returns have been great,” McGibbon said.

"I think if you have the capabilities and you can read the mega trends and the tailwinds and understand which sectors have those tailwinds, then you can definitely create alpha by making sector-specific bets."

Despite this optimistic outlook, McGibbon cautioned investors about the office sector, which he says still poses risks.

“The office sector is at different stages in different parts of the world. For example, in markets like Korea, Japan, Singapore, it is very tight. Returning to the office is pretty much where it was before COVID,” McGibbon said.

Meanwhile, other markets, such as the US, are experiencing different trends.

"In other places like the U.S., we've yet to really see how bad it gets and what the return to work looks like compared to the pre-Covid numbers," he told InvestorDaily, noting that overall trends point to a reduction in demand for office space.

"Over the next five to 10 years, it will definitely have an impact on returns and potential losses," he said.

To hear more from Chris McGibbon, click here.