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Manulife US REIT: Switching to High-Gear?

Targeting High-Growth Sectors in the U.S. Commercial Real Estate

by: Tam Ging Wien


All examples and stocks quoted here in this article and on the ProButterfly.com and REITScreener.com site are for learning purposes; it does NOT constitute financial advice or a Buy/Sell recommendation. Contents are reflective of personal views and readers are responsible for their own investments and are advised to perform their own independent due diligence and take into account their own financial situation. If in any doubt about the investment action you should take, you should consult a professional certified financial adviser.


We had the privilege of attending a special close door presentation by Scott Homa and Phil Ryan who are the Senior Director and Director respectively of Office Research Department at Jones Lang LaSalle (JLL) U.S. last month. This was an online Zoom event and was kindly organised by Manulife US REIT.

Both Scott and Phil have had many years of on the ground research and experience in the various US markets and sub-markets. They provided a very comprehensive overview the U.S. macro-economics, identified high growth cities, elaborated on U.S. population migrations, identified factors that make a city attract and as a result push up demands for commercial rents powering the growth of real estate in those markets.

We found the presentation was very insightful and very refreshing – both Manulife US REIT and JLL kept the sharing very forward looking while putting the COVID recovery story behind. They also identified cities and sub-markets which have high rental growth potential in the coming years.

Reading in between the lines of the event organisation and content, we would say that the this is likely to be a precursor to potential acquisitions by the REIT in the coming 12 months.

Indicators Pointing Towards Recovery in the U.S.

The event started with the sharing of the U.S. key macro-economic indicators which point towards a healthy recovery in the U.S.

Source: Jones Lang LaSalle (JLL) U.S.

From a general economic perspective, the U.S. has clocked in strong economic growth with various forecast putting expectations for a 6% to 8% year-on-year GDP expansion by Q4-2021. If achieved, this would be among the highest GDP growth figures in the past few decades. This growth appears to have also translated down to the employment market with a fall in unemployment rate to just 6.1% in April-2021. For comparison, the unemployment rate was 10.2% in the month of July-2020.

Source: U.S. Federal Reserve Economic Data – UNRATE

The biggest factor that gives JLL the confidence that all these economic factors translate to the office leasing market is the increase in real estate tour activities which is a leading indicator to the signing of Letter of Intent (LOIs) leasing deals. Tour activity was up 28% in March 2021 and 160% quarter-on-quarter in Q1-2021. These figures point towards a pent-up leasing demand and are viewed by the JLL team as early indicators that potential growth is returning to the office leasing market.

First, Some Geographic Definitions

Before reading on, it is worth taking a pause to define certain geographic regions which were used commonly across the presentation by JLL. Readers should keep these definitions in mind before reading on:

  • Gateway Cities – large, urbanised cities traditionally formed along the U.S. East and West coast as a result of past economic booms. These cities have a long-standing perception of being highly diverse, culturally established, and bursting with opportunities which attracts major corporates to setup office to source for the best talent. Examples include New York, Boston, Los Angeles, San Francisco, and Chicago.
  • Emerging Markets – cities that experience a large structural inflow of domestic population immigration attracted by new opportunities especially from the traditional gateway cities. Rapid migration drives demand for real estate and attracts corporates to setup office to ensure capture of talent. Examples include Austin, Charlotte, Pittsburgh, Phoenix, Nashville, Minneapolis, and Columbus.
  • Sun Belt – U.S. states stretching from Southeast and Southwest coast which generally experience a larger proportion of hotter and sunnier weather over the year. Examples include state like Alabama, Arizona, Florida, Georgia, Louisiana, Mississippi, New Mexico, South Carolina, Southern California, North Carolina, Nevada, and Utah. Examples of cities include Houston, Austin, Miami, Atlanta, Pheonix, San Diego, Tampa, Charlotte, Orlando, San Antonio, Sacramento, San Jose and Charleston.


Source: Wikipedia.org – Sun Belt

  • Rust Belt – Northeastern and Midwestern U.S. states that where once industrial manufacturing hubs in the automotive, heavy industries, mining, raw materials processing, steel, and coal but experienced significant deindustrialisation, economic decline, population emigration, urban decay as a result of declining industrial activity that beginning in the early 1980s. Examples includes states that runs westward from Central New York through Pennsylvania, Ohio, West Virginia, Kentucky, Indiana, the Lower Peninsula of Michigan, northern Illinois, and eastern Wisconsin. Examples of cities include Detroit, Gary, Flint, Cleveland, St. Louis, Buffalo and Cincinnati.


Source: Belt Magazine – Where is the Rust Belt?

Diverse Factors Driving Growth in Different Cities

Scott and Phil shared a list of what they observed as high rental growth cities growing between 6.7% to a jaw-dropping 51.0% in the last 5 years! Although this is a large range, bear in mind that each and every city has unique demographics, economic characteristics, economic drivers, and clusters that result in the real estate rental growth trajectories observed.

It is worth noting the U.S. averages for context when discussing these cities so that readers can have a comparison of the growth rates:

  • U.S. average population growth over the last 5-years: ~4%
  • U.S. unemployment rate in Apr-2021: 6.1%


Source: Jones Lang LaSalle (JLL) U.S.


Source: Jones Lang LaSalle (JLL) U.S.

Factor 1: Low State Taxes

Cities like Austin, Nashville, Phoenix and Salt Lake City experience a large influx of population local migrants from other states. One main draw to states like Salt Lake City (Utah), Nashville (Tennessee) and Austin (Texas) lower state income taxes below 5% with Texas and Tennessee standing out with zero state tax. Comparatively, states like California, New Jersey and New York charge state taxes at 13.3%, 10.75% and 8.82% respectively.


Source: Jones Lang LaSalle (JLL) U.S.

Factor 2: Lower Cost of Living

Phoenix’s (Arizona) draw on the other hand isn’t because it has low taxes; its state tax currently hovers at 8.0%. However, it has a significantly lower cost compared to its peer cities, specifically its cost of living ranks #76 in the major U.S. cities. For the purposes of comparison, New York City, San Francisco, Seattle, and Boston for in terms of their cost of living ranks #1, #3, #6 and #8 respectively.

With the increase migration due to the influx of residences looking to lower their cost of living, corporates also choose to setup in Phoenix’s to acquire talent at a lower cost both in terms of salary as well as office leases. A CBD class A office building in Phoenix averages a lease of $30.34 per sqft. In comparison, New York, San Francisco, Los Angeles, and Boston average around $96.32, $86.94, $65.52, and $78.38 respectively.


Source: Jones Lang LaSalle (JLL) U.S.


Source: Jones Lang LaSalle (JLL) U.S.

Factor 3: Explosion of New Jobs Opportunities

Some cities experience a confluence of factors that result in an explosion of new jobs. Mitsubishi Motors North America for example migrated its HQ from California to Nashville, Tennessee, creating many new jobs and bring in fresh migrants who presently work for Mitsubishi. Facebook also announced that it was spending US$800mil to construct a 982,000sqft data canter in Nashville and is estimated to support approximately 100 jobs and will have more than 1,100 construction workers on site at peak.

Other example include Honeywell moving its HQ from New Jersey to Charlotte, North Carolina and Telsa setting up its Gigafactory in Austin, Texas and has thrown out job advertisements for 10,000 jobs through 2022.

Besides Tesla, Austin has also become a magnet for many big tech firms choosing to expand beyond Silicon Valley and the Bay Area. Nicked name “Silicon Hills” for its hilly terrain on the west side of Austin, Texas has attracted big tech names with its low tax policies such as Dell’s global HQ, Advanced Micro Devices (AMD), Amazon.com, Apple Inc., ARM Holdings, Cisco, eBay, ESO, Facebook, Google, IBM, Indeed, Intel, PayPal, Procore, Silicon Labs, Texas Instruments, Oracle Corporation, VMWare, and many others.

As a result, cities like Charlotte, Nashville and Austin receive an explosion of migrants who follow these major corporate relocation and driving up real estate prices.


Source: Jones Lang LaSalle (JLL) U.S.


Source: Jones Lang LaSalle (JLL) U.S.

Factor 4: Lower Real Estate Cost and Reduced COVID-19 Restrictions

It is interesting to observe cities like Pittsburgh, Pennsylvania which did not experience significant job growth but still attracted many immigrants which pushed up housing cost and real estate leases. It was observed that these cities had a significantly lower state taxes, lower cost of real estate, as well as less stringent COVID-19 movement controls and restrictions.

Factor 5: Milder and Warmer Climates

The traditional gateway cities like New York, Boston, and Chicago are higher up north in latitude and therefore experience colder and harsher weathers with longer and colder winters, shorter daylight hours, lower proportion of sunny days and shorter and colder summers. With the internet enabling a greater proportion of knowledge workers to work-from-home, some have opted to live in the Sun Belt regions where the climate is milder and warmer.

Coupled with other factors elaborated above such as lower state and local taxes, lower cost of real estate, lower cost of living as well as a growing number of job opportunities, cities like Austin, Phoenix, Nashville, Charlotte, Miami, Denver, Orlando, Atlanta, and Tampa all experience a net inflow of domestic immigrants.

Factor 6: The War for Talent

There is a global shortage of high quality in the domains of software technology and life sciences. Wages in the science, technology, engineering, and mathematics (STEM) fields have been steadily rising. Corporations are on a talent hunt to secure the best and brightest talents sparking a War for Talent.

As a result of this global shortage, organizations are forced to seek talent in creative ways and among them are targeting cities that produce or have a higher concentration of STEM talent.

Examples of large public educational institutions in the U.S. that general a good proportion of STEM graduates are Texas A&M University, Purdue University, The Ohio State University, University of Michigan, Georgia Institute of Technology (Georgia Tech), University of Minnesota, University of Utah. Not to mention the traditional private STEM universities such as California Institute of Technology (CalTech), Duke University, Massachusetts Institute of Technology (MIT), Princeton University, Rice University, Stanford University, Harvard University and University of California (UC) all simultaneously contribute to the concentration of STEM degree holders in their respective cities.

As a result, certain high STEM concentrated cities benefit from the rapid expansion of technology and life sciences companies expanding office and floor space in those cities to secure a steady stream of talent.

Other cities like Minneapolis, Minnesota also did not experience a significant increase in job grow as well but its leading University of Minnesota produces a large proportion of science, technology, engineering, and mathematics (STEM) talent which attracts corporates to hunt for talent which drives up offices demand.

With local talent in these fields in demand in these cities coupled with the internet enabling a greater proportion of knowledge workers working from home, talented knowledge workers who are experiencing locked down fatigue as well as those wanting a large living quarters at a lower cost to be able to work-from-home more comfortably were attracted to these cities.


Source: Jones Lang LaSalle (JLL) U.S.

The Virtuous Cycle

The factors that drive sustained growth for real estate especially in the office sector tend to start with an explosion of the population with STEM or other high skilled talents. This leads to increase demand in real estate.

The highest growth markets tend to experience a confluence of multiple factors that drive domestic real estate growth. JLL identified the 3 most dominant factors:

  • Talent Pool
  • Quality of Life
  • Affordability



Source: Jones Lang LaSalle (JLL) U.S.

Putting all these factors together, Charlotte, Phoenix, Salt Lake City, Austin and Nashville has been identified as the top-5 highest growth markets in terms of class A office demand in the last 5 years. The influences that spiral their demand in an upward trajectory at point of writing are still presently intact.


Source: Jones Lang LaSalle (JLL) U.S.

Concluding Remarks

The media in general tends to publish more stories covering the doom and gloom of the office sector because of the COVID-19 pandemic. However, from what we have learnt from JLL’s sharing was that many of those gateway cities that are mentioned in the press already had other prior factors that drive the population to migrate out of those cities. These factors have already long been at play, the COVID-19 situation merely accelerated those trends.

The same factors that drive migration out of some of these gateway cities are the same factors that attract the migrants to other cities in the U.S. For example, high taxes, high cost of living, unfavorable weather have already been driving the outflow of domestic migrants. The severity of the COVID-19 pandemic drove these gateway cities to tighten their movement controls and lockdown measures, and this exacerbated the migration situation.

The destination that these domestic migrants were the exact opposite in terms of those factors – lower taxes, lower cost of living, warmer weather, and milder restrictions on social movements. Coupled with major corporates moving their HQs and expanding into those cities further drove demand for real estate as employees migrated together with their employers. Besides favourable business environment, the war for STEM and high skill talent also resulted in corporates expanding their offices to those cities to acquire the best talent which drives up demand for real estate.

As for investors, taking time to consider the complex dynamics of the U.S. office market could very well help us navigate the complex markets and suss out potential investments and deals. Even better if we are invested in a REIT that is already doing that for us! #ManulifeUSREIT

Positioning to Ride the Recovery

Opportunities and Risk Post-COVID-19 Pandemic in the various S-REIT Sectors

The COVID-19 crisis has brought about an unprecedented economic shock to many sectors, and yet it has also generated opportunities in others.

The tech sector has been a major beneficiary and along with that, S-REITs exposed to the Data Centre sector such as Keppel DC REIT and Mapletree Industrial Trust gained phenomenally.

But are the investment opportunities in REITs now gone? Personally, we do not think so. There are still many REITs below their pre-COVID-19 levels poise to recover strongly in the coming quarters – and now it is the best time to prepare to capture the post-COVID recovery.

Join us as we discuss the opportunities and risk in the S-REIT space sector-by-sector as we try to uncover recovery opportunities for FY2021 and beyond. Real estate sectors that we will be covering include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.

Our speaker Tam Ging Wien will be sharing his knowledge and experience including:

  • Part 1: A Survey of the REITs Landscape Around The World
  • Part 2: Key Metrics in Identifying Strong REITs
  • Part 3: Real Estate Sector Review Amidst the COVID Crisis
  • Part 4: Screening for Opportunities
  • Part 5: Q&A

Some key highlights that will be covered includes:

  • Real estate sector-by-sector review on COVID-19 impact and recovery opportunities. Sectors covered include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.
  • Opinion on which sector will continue to stay resilient and which are poised to recover quickly post-pandemic
  • The right metric to use when screening for high quality REITs
  • Case studies of REITs which are considered high quality
  • Step-by-step demo of how to screen for high quality REITs on your own

During the sharing session, various Singapore-listed REIT examples will be used.

There will also be a Q&A so that members of the investing community may engage in open dialog and discussions in order to deepen their understanding of REITs. Do prepare your writing materials for note taking.

Please note that the duration of the on-site seminar is 7pm to 9:45pm Singapore Time (GMT +8).

The details of the event are as follows:

  • Seminar: Positioning To Ride The Recovery
  • Date: 5th May 2021 (Wed)
  • Time: 7:00pm to 9:45pm
  • Venue: RNN Conference Centre - Kyoto Training Room (Level 4), 137 Cecil Street, Cecil Building #04-01, Singapore 069537
  • Fees: S$10.00
  • Sign-up Link: http://reitessentials.eventbrite.com/

To learn more about REITs, we recommend the article: What are REITs?

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