Our Business
Intro

There are many macro trends and structural forces affecting real estate including demographic, economic, political, regulatory and environmental changes. These trends continue to influence the investment decisions that we make to shape our real estate portfolio

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Need for reliable, repetitive and growing income

The UK population is expected to rise by 4% to almost 70 million by 2040. The UK has an ageing population with retirees projected to increase by 11% over the next ten years. With a declining working age population, this will increase the dependency ratio to c.25% by 2032.

This has implications for property, including increased demand for property that services retirees, reduced demand for offices, labour availability and costs, more efficient urban infrastructure and retiree demand for real assets which can deliver attractive income.

Need for reliable, repetitive and growing income
E-Commerce continues to grow at expense of physical retail
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Technological Disruption

Technology continues to power change across society in the way we work, live and shop. As we emerged from the pandemic, it was clear that technology has been a true enabler to allow many to work from home and it has created a trend that is unlikely to reverse.

As a result, penetration and adoption of online shopping continues its long-term upward trajectory, with online representing 26% of retail sales compared to 19% pre-pandemic. This is requiring greater logistics warehousing capacity with expectations growing for faster and more accurate delivery times which is fuelling further demand for the right urban logistics assets.

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GEOPOLITCAL AND ECONOMIC IMPLICATIONS

The invasion of Ukraine impacted supply chains and caused material commodity and energy price inflation, particularly in Europe. This has been exacerbated by the tensions in Taiwan and the impact of China’s delayed reopening following their zero Covid strategy.

These factors have contributed towards an economic slowdown across the world as central banks aggressively increased interest rates in response to soaring inflation.

After decades of very low interest rates, the period of a ‘free carry’ in real estate is over. Investors can no longer rely on borrowing money at low rates to invest into property to generate a positive arbitrage.

Strong demand for logistics
Convenience retail and long income
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SUPPLY/DEMAND TENSION

Competing land use from residential, student and self-storage is creating supply pressures with scarce urban logistics real estate often commanding premium rental levels. Over the last 20 years, London has lost 24% of its industrial floorspace whilst Manchester and the West Midlands have lost c.20%.

We continue to have a high conviction that evolving consumer behaviour coupled with diminishing supply of suitable space for occupiers can produce a strong tailwind for certain asset classes and deliver high rental growth. It is why urban logistics remains our conviction sector call and why we continue to focus on owning assets that are located in strong urban geographies.

We have also consciously allocated capital into grocery and convenience long income that benefits from the growing consumer preference for smaller format grocery spend, convenience over experience and essential spend over discretionary. We will continue to align ourselves to these sub-sectors and avoid those where technology is disrupting and the outlook is uncertain.

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SUSTAINABILITY A HIGH PRIORITY

We are all more mindful of our impact on the planet with the UK government and corporates leading the way on Net Zero Carbon ambitions. We see ourselves as strong stewards of underinvested or poorer quality assets with the necessary expertise and appetite to materially improve buildings and increase rents.

In our recent occupier survey, of those that responded, 79% have set or are considering Net Zero Carbon targets. Furthermore, valuations and the investment market are increasingly reflecting sustainability ratings of buildings in their assessments.

As part of our drive to upgrade the quality of our assets and progress our Net Zero Carbon ambition, we continue to invest in high quality buildings as well as progress energy efficiency and clean energy initiatives in conjunction with our occupiers. These include solar PV, LED lighting upgrades, roof improvements and electric vehicle charging.

Investors reallocating weightings