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 EEA 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.

The trends shaping post-pandemic property investments

Now that more than 18 months have passed since COVID-19 started sweeping the world, we have a good understanding of how the pandemic has affected real estate investments. In some ways, it has changed the game. In other ways, it has simply underlined a number of trends that were already shaping the sector.

These ‘megatrends’ will likely cross decades and decades, and have big implications for real estate – boosting some sectors and disrupting others. Below is a snapshot of the trends that have shaped 2020/21, and how we see them for the coming decade.

The fall of the high-rise office

While we don’t predict the death of the office tower, we do expect them to decline in tenant popularity. Global lockdowns have proved the viability of remote work and even as the world normalises, many companies are adopting a hybrid working model going forward.

The average occupancy cost for a service based business located in a CBD (central business district) area is approx. 8%1. Flexible working practices can lead to a reduction in work space requirements and lead to attractive corporate cost savings, which will likely have a material impact on tenant demand over the longer term. We are expecting market rents to fall and higher natural levels of vacancy within the buildings, leading to falling cash flows and valuations. While there will still be a place for such buildings, we believe that the economic returns will be higher in other real estate types.

Shopping Malls go out of fashion

It’s not just last year’s trend pieces that have fallen out of favour – so have the once-loved malls who sell them. Why traipse around a huge shopping centre to find the best price, when you can do it online instantly? Online shopping has led to a somewhat redundant customer offering, and malls no longer serve the purpose in society they once did. We expect foot traffic, retail sales and tenant demand to continue falling over time, and for shopping malls to experience higher natural levels of vacancy, lower market rents, cash flows and valuations. 

Technology drives real estate demand

The old world traditional real estate assets such as high rise office buildings and shopping malls make up a very small component of the Real Estate Investment Trust (REIT) universe, which we invest in. Most of the real estate sectors that are set to boom have technology driven societal change at their core. Logistics warehousing, manufactured housing, detached housing, medical office buildings, private hospitals, self-storage facilities, data centres, and biotech laboratories are among the sectors predicting strong growth, as shown in green below. 

Chart 1: Predicted real estate demand

First Sentier Investors as at 30 April 2021. Chart represents the views of the team and is for illustrative purposes only. 

Rental housing will continue to grow

Rental housing will continue to grow Housing is a basic social need and right throughout COVID, the rental housing in our portfolio remained structurally full at over 95% occupied with rent collections above 95%. Falling home ownership rates with societal change, are leading to a greater propensity to rent rather than own, with rental housing being a major beneficiary. We have 30% of our portfolio invested in residential assets across manufactured housing, detached housing and apartments, located in the US, Germany and the UK.

Logistics warehouses will deliver the future

With the continued global adoption of the internet, just about every good and service can be researched and procured with near perfect pricing. Price must at least meet the competition, which erodes operating margins, so the other competitive advantage is availability. Wholesalers, omni-channel retailers and e-tailers are therefore investing heavily into their supply chains, and the total capital inflow is immense.

It’s all about fast moving goods: who can get items from the manufacturer or wholesaler to the customer door the fastest? This involves very modern logistical warehousing – for example, our logistics investments in countries such as Hong Kong and Japan are built up to five levels high, usually with external circular ramps up the buildings for large trucks to efficiently load goods.

These modern logistical centres are also becoming very valuable, with end values of some assets exceeding $1 billion. Profit margins for long term ownership are compelling: in high barrier-toentry markets, margins are more than 30%. As per observed by the REIT’s, market rents are growing 3-5% p.a. in most markets and 5%-15% in top markets, leading to solid cash flow growth for our logistics investments2. Logistics investments in our portfolio are located across the US, UK, Belgium, The Netherlands, Romania, Japan and Australia.

Decarbonisation is driving change

Given that the global real estate sector creates one-third of global greenhouse gas emissions3, asset owners and investors can take a proactive approach to reducing the carbon footprint of the properties we live, work and invest in. We see five key areas that can deliver significant reductions in carbon emissions:

1. Reducing operational carbon (from the heating, cooling and running of buildings)

2. Reducing embodied carbon (from the construction and demolition lifecycle of buildings)

3. Installing on-site energy generation technology

4. Procuring renewable energy

5. Purchasing carbon offsets

Through rigorous bottom-up analysis, our team identifies which asset owners are focused on these factors, so that we can allocate our capital to these asset owners accordingly.

Conclusion

We have shaped our Global Property Securities portfolio to make the most of these societal megatrends. Our residential and logistics investments reflect 55% of the portfolio4 and the remainder of the portfolio is well-diversified predominantly across hotels and resorts, self-storage facilities and data centres. Given the strong underlying fundamentals, we believe the portfolio is very well placed to deliver very good risk adjusted returns for investors, well into the future.

1 Source: FSI, August 2021

2 Source: FSI, August 2021

3 Source: World GBC - Advancing Net Zero – Asia Pacific Embodied Carbon Primer, Sept 2020

4 as at 31 August 2021

Important Information

This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should conduct your own due diligence and consider your individual investment needs, objectives and financial situation and read the relevant offering documents for details including the risk factors disclosure. Any person who acts upon, or changes their investment position in reliance on, the information contained in these materials does so entirely at their own risk.

We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication but the information contained in the material may be subject to change thereafter without notice. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material .

To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.

Past performance is not indicative of future performance. All investment involves risks and the value of investments and the income from them may go down as well as up and you may not get back your original investment. Actual outcomes or results may differ materially from those discussed. Readers must not place undue reliance on forward-looking statements as there is no certainty that conditions current at the time of publication will continue.

References to specific securities (if any) are included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. Any securities referenced 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.

References to comparative benchmarks or indices (if any) are for illustrative and comparison purposes only, may not be available for direct investment, are unmanaged, assume reinvestment of income, and have limitations when used for comparison or other purposes because they may have volatility, credit, or other material characteristics (such as number and types of securities) that are different from the funds managed by First Sentier Investors.

Selling restrictions

Not all First Sentier Investors products are available in all jurisdictions.

This material is neither directed at nor intended to be accessed by persons resident in, or citizens of any country, or types or categories of individual where to allow such access would be unlawful or where it would require any registration, filing, application for any licence or approval or other steps to be taken by First Sentier Investors in order to comply with local laws or regulatory requirements in such country.

This material is intended for ‘professional clients’ (as defined by the UK Financial Conduct Authority, or under MiFID II), ‘wholesale clients’ (as defined under the Corporations Act 2001 (Cth) or Financial Markets Conduct Act 2013 (New Zealand) and ‘professional’ and ‘institutional’ investors as may be defined in the jurisdiction in which the material is received, including Hong Kong, Singapore and the United States, and should not be relied upon by or be passed to other persons.

The First Sentier Investors funds referenced in these materials are not registered for sale in the United States and this document is not an offer for sale of funds to US persons (as such term is used in Regulation S promulgated under the 1933 Act). Fund-specific information has been provided to illustrate First Sentier Investors’ expertise in the strategy. Differences between fund-specific constraints or fees and those of a similarly managed mandate would affect performance results.

About First Sentier Investors

References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group (MUFG).

Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors and Realindex Investments, all of which are part of the First Sentier Investors group.

This material may not be copied or reproduced in whole or in part, and in any form or by any means circulated without the prior written consent of First Sentier Investors.

We communicate and conduct business through different legal entities in different locations. This material is communicated in1:

Australia and New Zealand by First Sentier Investors (Australia) IM Limited, authorised and regulated in Australia by the Australian Securities and Investments Commission

(AFSL 289017; ABN 89 114 194311)

European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)

Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong

Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B) is a business division of First Sentier Investors (Singapore).

Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611)

United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)

United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167).

To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document.

Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products 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.

© First Sentier Investors Group

MAR000845_1021_EMEA

1 If the materials will be made available in other locations, seek advice from Regulatory Compliance.