Global property opportunities are built on solid ESG foundations
Confirming our portfolio net zero overlay intention has further deepened our understanding of the global property securities sector we invest in. Our continuous focus on in-depth, in-house research means we can see things differently, which has led to discoveries into new risks and opportunities. Our focus on capital preservation remains as strong as always with a preference for allocating capital to well managed assets in high barrier to entry markets in many of the world’s most bustling cities.
Embodied CO2 p.a
Operational CO2 p.a
Development
Embodied Carbon
Operational
Carbon Intensity
Solar Energy
Generation
Solar Generation
to Energy
Cogeneration Energy
energy use is cogeneration
Energy Sourced from Renewables
Development Embodied Carbon Offset
Employee Diversity
has employee
diversity plan
in place
Waste Management
defined waste management
program
Charity
charity or foundation
plan in place
All data is sourced from First Sentier Investors, as at March 31, 2022
FSI estimates of total portfolio carbon emissions. FSI estimates of Total portfolio operational controlled and non-controlled carbon emissions. FSI estimates of total portfolio embodied carbon emissions from development activities.
Data centres - tapping internet growth via listed property
Investing in listed property stocks that own data centres - the specialist buildings which house the infrastructure required to power modern internet usage – gives investors access to one of the greatest structural shifts of our time.
Reliable data centres are expensive to build which means that the supply of new centres is well controlled. A turn-key data centre in the US can cost twice as much as an office tower to build.
This cost reflects the highly specified plant and equipment required for the data centre to have virtually no risk of down time in operations.
Data centres have a wide range of business models appealing to a diverse range of customers - from governments to telecommunication companies to vast internet-centric firms.
With the industry thematic of a high rate of adoption of the internet, together with the large growth in cloud computing, data centres with the right business model can deliver high cash flows well into the future.
Data Centres - Total Operational Floorspace
Source: 451 Research and Digital Realty
Build to rent boom
With accelerating tenant demand now an established long-term trend, the supply of purpose-built rental accommodation has failed to keep up with vacancy rates that are very low in most global cities*.
Strong house price inflation has affected housing affordability. Purpose-built, professionally owned and managed residential rental properties are emerging, with luxury amenities like gyms, community facilities, parcel delivery and even child care being included.
Within the ‘residential for rent’ asset class, cash flows have proved stable through economic cycles, with occupancy levels typically remaining high through periods of economic slowdowns. Rents are correlated to employment and wages growth, demographic trends and supply levels. From an institutional investment perspective, we believe the returns have been competitive.
* Source: government data as at March, 2020.
U.S. Household Formation vs Total Housing Completions
Source: US Census Bureau
An eye on investment opportunities in student accommodation
While most sectors suffer in times of high unemployment, history has shown us the education sector attracts increasing enrolments as consumers look to bolster their employability. For property investors, this recession-proof demand combined with strong growth in student numbers makes student accommodation a defensive diversification play against the broader equity market. There were over 5.3 million international students in 2017, reflecting an uplift of more than 150% since 2000 (UNESCO 2019).
75% of the top 20 most highly rated universities are located in the United States and the United Kingdom (Source: QS 2020 World University Rankings). Unsurprisingly, demand for places is strongest at these highly rated institutions. Student accommodation in the United States and the United Kingdom remains a drawcard for international students.
Closing out strong gains for our portfolios, we have recently exited from our exposures to this sector. We are currently watching short term headwinds related to the COVID 19 pandemic, while evaluating the longer term implications of the potential shift towards remote learning by universities before considering re-establishing a position.
Disclaimer: Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.
Meet the team
Stephen Hayes
Andrew Schaffer, CFA
Dennis Maloney, CFA CMT
Daniela Lungu
Insights
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