Corporate overview

AEW is one of the world’s largest real estate asset managers with €71.2bn of assets under management as at 31 March 2020. AEW has over 700 employees, with its main offices located in Boston, London, Paris and Hong Kong, and offers a wide range of real estate investment products including comingled funds, separate accounts and securities mandates across the full spectrum of investment strategies. AEW represents the real estate asset management platform of Natixis Investment Managers, one of the largest asset managers in the world.

AEW is one of the leading European real estate investment managers with €33.5bn of real estate assets under management in Europe as at 31 March 2020. With over 400 employees operating from 12 locations throughout Europe, AEW has a long track record of successfully implementing core, value-add and opportunistic investment strategies on behalf of its clients. In the last five years, AEW has invested and divested a total volume of over €20bn of real estate across European markets.

For further information on AEW, please visit www.aew.com

Sector forecasts

Industrial: as of early June 2020: Despite the global macro-economic recession now expected for 2020 as a result of the Covid-19 related lockdowns, European logistics is expected to keep showing robust momentum as traditional retailers accelerate their transition to omni-channel distribution and supply chains. The sector is expected to be less impacted by the economic slowdown as increases in online retail penetration have accelerated during the last three months. With the lower manufacturing and retail activity combined with an increase in corporate defaults, we expect rents to be slightly lower for the sector overall for the next two years amid an increase in vacancy rates as the overall net absorption comes down as a consequence of the recession. But, the impact on vacancy and rents will be cushioned due to (speculative) development becoming more selective as debt finance might no longer be available as most lenders address operational issues from the Covid-19 impact on their existing loan books. As the recovery unfolds in 2021, market rental growth remains sustainable for European logistics and industrial facilities, especially as re- or near-shoring of global supply chains gains momentum.

Office: as of early June 2020: The Covid-19 lockdown forced many service sector staff to work from home (WFH), be put on state support (furlough schemes) or lose their jobs. As a result, unemployment across most of Europe is expected to increase in 2020 and 2021 with WFH to increase as well, both reducing the immediate demand for office space. This should reverse the upward pressure for rents across most prime office markets into 2021. Many tech companies are now looking at longer term WFH options for their staff and this could bring down tech-related demand more quickly, which had been a major demand driver for European offices in recent years. But, pre-Covid vacancy levels were near record lows and there remains a lack of large and high-quality stock with the pipeline for new office developments likely to stall as construction activity was also stopped during the lock downs. This will be reduction in new supply will likely be extended into the next few years as debt finance might no longer be available. Lenders will need to address operational issues from the Covid-19 impact on their existing loan books and reflect on the WFH trend on pending loan applications. As a consequence, we expect much lower, albeit positive market rental growth across European offices in the next five years.

Residential: as of early June 2020: Regardless of the significant economic slowdown in 2020, we expect that the medium term prospects remain favorable as the 2021 recovery comes through. This is because the long-term supply-demand imbalance across many European markets remains in place. The multi-family residential sector should therefore continue to attract more domestic, intra-regional and global capital in the medium term. Pre-Covid 19, many cities had become unaffordable for first time buyers despite historically low interest rates and were seeing a revival in rental housing construction. Residential construction was paused during lock down and might be slow to recover in the short term due to labor and material shortages. With higher health concerns from commuters for public transport connectivity in the short term and possible expansion of rent controls in high cost cities in the longer term, we could see a shift to non-gateway and suburban markets for lower density and sustainable multi-family development post-Covid 19. Investors might pause on student housing as international students were a key demand driver prior to the virus. However, senior housing should remain an attractive emerging segment in Europe, with strong demographic and wealth fundamentals.

Retail: as of early June 2020: The covid-19 related lockdowns and forced closures of high street shops and shopping centres across Europe hit the retail sector particularly hard. The crisis has further increased the pressure on many already struggling retailers. Pre-covid-19 competition from online retail had already triggered the failure of a num­ber of retailers, with many others already looking for rent concessions through CVAs and otherwise. In fact, retail tenants have been the most likely to cease rent payments or request rent concessions due to financial hardships. Prime high streets and dominant shopping centres should continue to prosper in the medium term once consumers are able to return. Initial data from Asia and post-lockdown European markets confirms this. Under current social distancing and stricter health and safety rules, it will take some time and effort to restore food and beverage or entertainment component of retail concepts. An increased focus on inte­grating retail in multi-use urban centres could be part of a defensive strategy in the face of the immediate Covid-19 impact and the increased e-commerce competition compared to other traditional retail centre types.

Investment principles & strategy

Since its creation in 1981, AEW has been dedicated to creating and implement­ing real estate investment and asset management strategies for institutional and retail investors. AEW offers investors a wide range of investment solutions across Europe, including separate accounts and co-mingled funds across core to opportunistic strategies.

Strategic corporate development

Over the next three to five years, AEW is expecting to grow the European business by launching new funds and continuing to invest on behalf of new and existing separate account mandates. In particular, the firm is expecting to raise further capital for the following funds*:

· EUROCORE: an open-ended, pan-European core fund aiming to build up a modern, future-proof and well diversified portfolio;

· Europe City Retail: a pan-European core fund investing in high-quality retail assets located in central high street locations;

· SELF III: a pan-European core real estate debt fund targeting senior loan investments;

· UK Urban Real Estate Fund: a closed-ended, value add fund investing in a diversified portfolio of assets across the UK; and

· UK Core Property Fund: an open-ended core fund investing in a diversified portfolio of assets in the UK.

* Retail and non-sophisticated investors are not eligible to invest in these funds.

COMPLIANCE STATEMENT
Total AUM includes the assets and businesses managed by AEW SA and its subsidiaries and AEW Capital Management and its subsidiar­ies and $465mn in sub-advisory securities wrap accounts for which AEW provides only a model portfolio. Information relates to AEW as at 31 March 2020. The address provided is that of AEW SA and is authorized and regulated by the Financial Conduct Authority/AMF (French securities regulator). The content offered is for information purposes only. It does not constitute investment advice or a recommendation nor is it an invitation or inducement to engage in investment activity. The information and opinions presented have been prepared internally and/ or obtained from sources which AEW believes to be reliable, however AEW does not guarantee the accuracy, adequacy, or completeness of such information. Opinions expressed reflect prevailing market conditions at the time this material was completed and are subject to change. Investors should consider the investment objectives, risks and expenses of any strategy or product carefully before investing.