Close

Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

Discover more
Close

Specialists in equity portfolios in Asia Pacific, emerging markets, global and sustainable investment strategies

Discover more
Close

Our philosophy is very simple. We are constantly searching for high quality businesses and when we acquire them, we will work relentlessly with them to create long-term sustainable value through innovation, ESG-led and proactive asset management.

Discover more
Important Note Click to maximise

This is a financial promotion for The First Sentier Global Property Securities Strategy. This information is for professional clients only in the UK and Switzerland and elsewhere where lawful. Investing involves certain risks including:

  • The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
  • Currency risk: Changes in exchange rates will affect the value of assets which are denominated in other currencies.
  • Single sector risk: Investing in a single sector may be riskier than investing in a number of different sectors. Investing in a larger number of sectors helps spread risk.
  • Single country / specific region risk: Investing in a single country or specific region may be riskier than investing in a number of different countries or regions. Investing in a larger number of countries or regions helps spread risk.
  • Charges to capital risk: The fees and expenses may be charged against the capital property. Deducting expenses from capital reduces the potential for capital growth.
  • Property securities risk: Investments are made in the shares of companies that are involved in property (like real estate investment trusts) rather than property itself. The value of these investments may fluctuate more than actual property.
  • Emerging market risk: Emerging markets may not provide the same level of investor protection as a developed market; they may involve a higher risk than investing in developed markets.

 

For details of the FCA authorised firms issuing this information and any funds referred to, please see Terms and Conditions and Important Information below

For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund.

If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.

‘Rentability’ and the lure of energy-focused landlords

Global Property Securities - 'Rentability’ and the lure of energy-focused landlords

Why environmental considerations could have the biggest impact on global REIT returns.

As more carbon emission regulation comes in globally – as we expect it will – Real Estate Investment Trusts (REITs) with emission reduction plans are likely to be better-placed than their peers as the cost of carbon increases.

And while the introduction of carbon emission regulation could take some time, and may vary in different countries, leading REITs with a focus on energy efficiency and emissions measurement are finding more immediate benefits.

As a specialist investor in REITs globally, we are seeing opportunities in valuation adjustments of companies based on their carbon emission reductions and energy efficiency.

The rentability factor

More and more, commercial tenants are seeking out buildings and landlords with higher energy ratings. And our invested capital is seeking out REITs with a genuine focus on emissions reduction, including the harder-to-measure embodied carbon associated with development.

“Rentability” is a major factor contributing to secure rental-income streams and cash flows that drive a building’s valuations over time. We expect that inefficient or “brown” buildings will become increasingly harder to rent as decarbonisation, employee wellness and operational efficiency themes mature.

We expect tenants to increasingly steer away from less sustainable buildings as they seek out energy cost savings – cost savings that are typically shared between the tenant and the landlord.

Even though it has been hard to separate the fact that “greener” buildings are often the newest buildings in the market, carbon-reduction efforts do play a prominent role in preserving the value of greener, more energy-efficient buildings in our experience.

Different regions, different pathways

In Europe, five countries — France, Sweden, Denmark, Finland and the Netherlands — have introduced regulation on embodied carbon emissions inclusive of scope 1, 2 and 3, according to Euractiv (March 15, 2022). Scope 1 and 2 refer to direct and indirect greenhouse gas emissions, while scope 3 relates to emissions produced as a consequence of the activities of the company from sources not owned or controlled by the company.

France was the first country to introduce this type of legislation in October 2019 when it implemented the Tertiary Decree, requiring all commercial buildings over 1000 square metres to reduce their energy consumption (vs 2010) by 40 per cent in 2030, 50 per cent in 2040 and 60 per cent in 2050, or to respect a maximum consumption threshold defined by building type.

More recently, France implemented further regulation covering embodied carbon associated with development.

The United States currently has no nationwide regulation covering carbon reduction of buildings. There is evidence, however, of movement at the state level, according to the National Association of Real Estate Investment Trusts.

New York City’s Local Law 97 could see fines issued for companies that exceed energy efficiency and greenhouse gas emissions limits from 2024. Similarly, the Title 24 Law in California looks to address energy usage and carbon emissions in future tenant spaces.

In Asia-Pacific, many REITs are adopting scope 1 and 2 emission-reduction targets; however, only a few are implementing embodied carbon emission-reduction targets and programmes. This is starting to change, particularly in Australia and Japan.

We expect carbon emissions to continue to be a focus for investors and regulators as the sector does more of the heavy lifting.

Real estate currently contributes around 37% of the world’s CO2 emissions in 2021, according to United Nations Environment Programme.1

Investing in REITs with policies in place to reach net zero and improve their energy efficiencies bring multiple benefits to investors. Along with cost savings through energy efficiency and improved rentability as mentioned above, we also see this as an important risk mitigation factor as carbon regulation gets implemented across the globe.

Whilst the priority should be a focus on embodied carbon reduction through measurement and design, carbon offsets also play an important role. Carbon offsets are currently unregulated globally, so a high level of scrutiny is required by companies prior to investing in these.

Overall, we believe listed real estate is a good place for investors to capture changing global property dynamics. These trends include the growth of e-commerce, the rise of data consumption, ageing populations, as well as new societal changes stemming from a post-pandemic environment such as decentralisation of living and working and other long-term trends like falling homeownership rates.

Further, we expect listed real estate will be a good place to capture the shift towards greater climate regulation and the repricing of assets in the light of the costs of future carbon offsets and preferences for energy efficiency.

2022 Global Status Report for Buildings and Construction: Towards a Zero‑emission, Efficient and Resilient Buildings and Construction Sector

 

As seen in the Australian Financial Review

Important Information

This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered. It does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of issue and may change over time. This is not an offer document and does not constitute an offer, invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document.

This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy, or completeness of the information. We do not accept any liability whatsoever for any loss arising directly or indirectly from any use of this document.

References to “we” or “us” are references to First Sentier Investors a member of MUFG, a global financial group. First Sentier Investors includes a number of entities in different jurisdictions. MUFG and its subsidiaries do not guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk including loss of income and capital invested.

If this document relates to an investment strategy which is available for investment via a UK UCITS but not an EU UCITS fund then that strategy will only be available to EU/EEA investors via a segregated mandate account.

In the United Kingdom, issued by First Sentier Investors (UK) Funds Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB number 2294743. In the EEA, issued by First Sentier Investors (Ireland) Limited which is authorised and regulated in Ireland by the Central Bank of Ireland (registered number C182306) in connection with the activity of receiving and transmitting orders. Registered office: 70 Sir John Rogerson’s Quay, Dublin 2, Ireland number 629188. Outside the UK and the EEA, issued by First Sentier Investors International IM Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registered number 122512). Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB number SCO79063.

Copyright © (2022) First Sentier Investors

All rights reserved.