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Here’s how investors can position themselves as New York City retakes the crown as the world’s financial hub, UBS says

People stand outside a subway station in Times Square. The New York City subway system is the largest in the US.

Spencer Platt/Getty Images

  • UBS in its “Future of New York” report published Wednesday outlined ideas for investing in the Big Apple. 
  • The Swiss investment bank focused on New York City as it recovers as the epicenter of the COVID outbreak. 
  • The commercial real estate market and the transportation sector are worth investment consideration. 

The COVID-19 pandemic cast doubt about New York City’s standing as the center of finance, culture and the arts in the US, when it became the epicenter of the outbreak in 2020, said UBS in a report published Wednesday. But the Swiss investment bank offered some ideas for how to invest in the Big Apple as it climbs back from the health crisis.

Cases and hospitalizations in the city stemming from the Omicron variant of the coronavirus have been moving downward, according to local health officials. UBS in its “Future of New York” report said while Omicron hurt the city’s nascent recovery, as the pandemic subsides it sees a resumption of capital investments in physical infrastructure, among other types of investments. 

Federal stimulus helped ease the strain on the city’s budget, and credit spreads on the city’s municipal bonds have compressed in the past year.

“However, investors can still find reasonable values in the city’s taxable and tax-exempt bonds, many of which are focused on sustainable investments.” 

“We reject the idea that New York’s best days are behind it and instead make a concerted argument that its unique attributes still offer investors an opportunity to benefit from its recovery,” wrote Tom McLoughlin, head of fixed income Americas, and Solita Marcelli, chief investment officer Americas, at UBS Global Wealth Management. 

Here are some investment sectors to consider, according to UBS: 

Commercial Real Estate 

Recovery in what’s been one of the most active CRE investment markets in the US has been sluggish compared with the “remarkable” rebound for residential housing. Many corporate employees are still working full-time or part-time from home to cut the risk of COVID exposure. UBS said the New York office market will be somewhat bifurcated for the foreseeable future, with newer projects and renovated buildings that offer improved ventilation, flexible workspaces, and touchless controls holding an advantage over older buildings without such features. 

But the increasing number of vaccinations and willingness of federal and local governments to stave off mass shutdowns should help improve conditions in the CRE market. UBS said these factors are beginning to show up in office transaction volumes, particularly in the last three quarters of 2021. 

It said in equities, real estate investment trusts, or REITs, with a degree of concentration in the New York metropolitan area are a way for investors to focus on a revival in the commercial real estate market. 

“The international buyer has been noticeably absent during the pandemic, but we expect to see a broadening of the investment landscape in CRE as New York remains one of the most important business, investor, and tourist destinations in the world.”

Higher Education 

More than 500,000 people attend colleges and universities in the city, with Columbia University and City University of New York among larger institutions. The sector is slowly recovering from the pandemic that forced the suspension of in-person classes. High vaccination rates and declining hospitalizations will aid the recovery but sluggish trends in enrollment and cost pressures will persist in the short term. 

“The near-term credit outlook for higher education is somewhat mixed given still-weak enrollment trends, although we expect their recovery to pick up by the fall of 2022,” said UBS. “That said, after a solid rally in the municipal market since March 2020, bond yields in the higher education sector are now tighter than pre-pandemic levels, so careful credit selection is essential especially given the widening credit quality gap between financially strong colleges and those facing substantial fiscal and market challenges.” 

It said it prefers higher education institutions that have a “substantial” student body and endowments or solid financial support from state and local governments and hold solid academic reputations. 

Transportation

Among the effects of the pandemic, the spread of the virus forced the Metropolitan Transportation Authority to suspend subway services for the first time in 115 years and activity slowed to a near standstill at major airports in the area. 

The “services provided by New York’s transportation agencies are critical components to the urban landscape, and their resilience is often underestimated. Exogenous shocks, such as COVID-19, tend to widen credit spreads and provide buying opportunities. Assuming customer usage continues to recover from pandemic lows, recent volatility aside, CIO believes some issuer spreads have room to compress further.”

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