Our business drivers and markets

Macro and structural trends influence our capital allocation

Business drivers

Macro and structural trends continue to dictate the investment Backdrop for real estate.

Geopolitical & economic

The global economy is shaped by geopolitical events, global trade tensions, elevated inflation and shifting expectations for future interest rates. This is impacting business and consumer confidence and economic growth prospects which is creating an uncertain investment backdrop.

Sentiment in real estate continues to be driven by five-year swap rates which remain elevated. Whilst real estate investment activity has increased significantly over the last year, we do not expect liquidity to return until five-year swap rates fall nearer to 300bps, which would allow an all in cost of debt of c.5%.

+ 23 %

Real estate investment activity in 2024

Technology

Technology continues to reshape consumer behavior in how we work, shop and live with profound impacts on real estate. Adoption of online shopping continues its upward trajectory and there are clear winners out of the shift, as space required to store, move and manufacture goods is increasingly important.

For the troubled office and retail sectors, prospects for some micro sub-sectors have improved, however significant headwinds persist. In the office market, outside of the very best locations, the headwinds are fierce with strong parallels to the shopping centre sector ten years ago. Operational retail property continues to suffer as the consumer pivots further towards an omni-channel and convenience shopping model.

As technology continues to accelerate change, we remain focused on sectors and assets best positioned to benefit from this disruption, while remaining cautious of those exposed to long term headwinds.

+ 4.5 %

UK online sales growth expected in 2025

Value & quality

The cost of living crisis has pushed the consumer to economise, which is benefitting discount/essential retailers and businesses aligned to staycations. Leisure activities that cater for experiences have been highly resilient, whilst private hospitals are benefitting from demands for better healthcare.

Convenience is an area where we are looking to grow our exposure in particular. The store network remains integral to retailers, and our convenience assets are well located, stand-alone or cluster properties that are fit for purpose, right sized and right rented. These assets are let to resilient operators such as grocers, discounters, and DIY retailers, who are less exposed to the shift towards online shopping. They provide essential goods and offer omni-channel functionality in highly accessible formats.

+ 17 %

Growth in Lidl UK revenue in 2024

Demographics and urbanisation

The UK population is projected to increase by 7% from 2022 to 2032 and see a rise in ageing population. This is providing structural tailwinds for sectors that service retirees, including healthcare, as well as increasing the need for housing and efficient urban infrastructure, particularly urban logistics warehousing.

+ 14 %

Growth in people of pensionable age

Our Markets

Structural tailwinds are providing strong support for logistics, convenience, private healthcare, hospitality and experiences.

Logistics

The structural tailwinds for the logistic sector remain strong, namely continued online sales growth, reshoring activities, rewiring of supply chains and warehouse automation.

We continue to believe that urban logistics remains the most attractive sub sector of logistics and has the greatest demand/supply tension and rental growth potential.

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Convenience

The store network remains integral to retail. Well located, fit for purpose, right sized and right rented properties let to grocers, discounters, home and DIY operators continue to be attractive.

These occupiers have resilient business models that are less exposed to the migration of shopping online offering essential goods and omni-channel optionality in a convenient format.

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Entertainment & leisure

Entertainment & leisure is benefiting from the trend towards experiences, the recovery in international travel and consumer preferences for staycations given household financial pressures.

UK hotels have seen a strong recovery since the pandemic and see favourable dynamics following years of supply contraction. Visitor attraction operators, including theme parks, have also benefitted as consumers prioritise experiences over things.

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Healthcare

Healthcare is underpinned by an ageing and growing population as well as improvements in technology.

UK private hospitals are particularly well placed as they are increasingly utilised to address growing NHS waiting lists and the strong growth in insured and self-pay patients as they seek better and faster care.

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