AXA IM Alts is a global leader in alternative investments with c.€184bnofassetsundermanagement1 comprisingc. €88bn of primarily private real estate, over €85bn of private debt and alternative credit, as well as over €11bn in infrastructure, private equity and hedge funds. We take a 360° approach to real estate and infrastructure investing with over €131bn of assets under management in direct opportunities, held indirectly through debt and listed equities and via long term private equity investments into operating platforms. ESG is fully integrated into our investment decision making processes with our responsible investment approach anchored by the three key pillars of decarbonisation,resilience and building tomorrow. AXA IM Alts employs over 800 people located in 17 offices around the world and serves the needs of more than 500 clients from Europe, North America, Asia Pacific and Middle East. We are the number one property portfolio and asset manager in Europe2, and one of the largest worldwide.

1 Source: AXA IM Alts data (unaudited) as at 30 June 2022.
2 Source: IPE Top 150 Real Estate Investment Managers, November/ December 2021. #1 real estate investment manager in Europe based on total European real estate assets under management.

Investment principles & strategy

AXA IM – Real Assets’ core business is real asset portfolio development and asset management. It aims to provide expert global real estate and infrastructure investment solutions throughout market cycles, supporting every client’s unique strategy. AXA IM - Real Assets launches and actively manages or advises real asset portfolios, seeking wide-ranging opportunities through a variety of investment strategies along the risk spectrum: from core to opportunistic, country-specific to geographically diversified, sector-specific to multi-sector. Its 360-degree, multidisciplinary real asset approach allows it to combine different management styles and expertise, to provide clients with individual investment solutions and deliver targeted returns commensurate with specific investor risk profiles and objectives.

Sector forecasts

INDUSTRIAL / LOGISTICS: Growth in online retail and the need to improve supply chain resilience have fuelled the occupier demand in logistic markets around the globe. Above-inflation rental growth is triggered by demand-supply imbalance, rising replacement costs and below long-term average vacancy rates in key markets. Over the next period, relatively strong rental growth should con- tinue to counterbalance rising yields, resulting from rising inflation and higher interest rates; logistics is expected to outperform other key commercial sectors; we believe there are still development opportunities in some markets.

OFFICE: Despite uncertainty due to a weakening economic outlook, office take-up remained relatively healthy in H1 2022. Recent leasing activity reflects changing occupier demand and the shift to a more hybrid workforce, with a focus on good quality assets. Thus, older and second-hand offices showed more pronounced rises in availability, whereas available Grade A stock is lacking in many markets. The current supply shortage of modern space and lower than expected completion levels will put upward pressure on prime office rents, whereas weakening overall market conditions are likely to push down average rents.

RESIDENTIAL: Multifamily displayed strong fundamentals in H1 2022 as workers returned to cities and occupancy fundamentals largely reached pre- pandemic levels. Economic pressure, shifting demographic and social prefer- ences makes renting an attractive option for younger generations. Demand- supply imbalance persists, especially in regulated markets and for affordable stock. Supply is picking up in some locations, but labour shortages, rising input costs and higher costs of debt financing will hamper deliveries in the near term. Governments continue to review regulations concerning affordability, with indexation remaining the most common approach. Selective regulated markets should support resilient long-term income returns, while short to medium-term rental growth is expected to be strongest for mid-market stock.

RETAIL: COVID -19 shock exacerbated challenges for retailers and landlords and prompted a strong correction of retail rents and yields. As the pandemic started to recede from mid-2021, retail improved with some stabilisation, and the retail investment market strengthened. However, the new headwinds in H1 2022 (high inflation, deteriorated GDP prospects) should weigh on both supply (retailers’ costs) and demand (depressed retail sales) and delay the recovery. In H1 2022, consumer confidence fell to historical lows and the cost-of-living squeeze affected discretionary spending. Looking ahead, resilience to macro pressures should lead to different fates by retail formats: exposure to food/ luxury tenants should be a hedge on the uncertain environment. Selectivity will remain key.

OTHER:

Student accommodation: Pent-up demand from university defer- rals coupled with the return of in-person learning boosted international demand. Rent collection and occupancy rates have largely recovered to pre- pandemic levels across key university markets, while low provision rates com- bined with higher input and financing costs dampen a supply response while keeping standing stock competitive. High inflation and recession risk will likely boost investment activity as managers look to higher-yielding inflation- hedged cash flows provided by countercyclical asset classes.

Hotels: A growing global middle class and ballooning wealth continue to drive tourism potential. Gateways are seeing a slow recovery from COVID -19. Full annual recovery is not expected before 2024 due to macroeconomic and geo- political risks. Hotel construction activity is likely to slow down post-2023 as construction and funding costs have risen materially. A full (annual) market RevPAR recovery is expected by 2024 with domestically oriented hotel mar- ket performance likely to bounce back first. Higher-scale (full-service) hotel profitability more likely to be disproportionately impacted by cost pressures. Persisting potential for value creation via consolidation, branding and opera- tionalisation as investor sentiment is recovering.

Data centres: Absorption is hitting all-time highs across the globe; industrywide demand is unprecedented. Data centre space vacancy sits at all-time lows. Con- struction projects are largely pre-leased; inventory pipelines won’t be rebuilt until late 2023 and early 2024. Development restrictions complicate matters, though benefit existing data centre owners. Rental rates are rising. Debt markets have cooled off for data centre real estate, though private investor interest is resilient. Global data centre cap rates were revised higher by 25-50bps in June. Develop- ment is the preferred capital allocation avenue, boasting attractive returns.

Strategic corporate development

AXA IM – Real Assets’ strategic objective is to become a global player, answer- ing clients’ needs through a 360° view on real asset investing. In a rapidly evolving environment, the company continues to pursue both its medium- and long-term development plans and sees active long-term real asset investment management as its value-added area of growth. It focuses its strategic develop- ment initiatives on the following key areas:

  • Strengthening its relationship with clients;
  • Growing its geographic presence;
  • Pursuing selective product line expansion and innovation to meet client needs;
  • Reinforcing its governance, operational excellence and risk-management frameworks.

 

Compliance statement

Restrictions on use
The information, answers, statements and analysis (together the “Material) provided herein by AXA Investment Managers – Real Assets (“AXA IM – Real Assets”) are provided in good faith for the sole use of the company to whom it is addressed and at its sole request. The information contained herein is to be treated as confidential. It is not for use by retail customers under any circum- stances. This Material does not constitute an offer or solicitation, nor is it the basis for any contract for the purchase or sale of any investment, security or product. AXA IM – Real Assets disclaims any and all liability relating to a decision based on or for reliance on this Material. Analysis and conclusions express the views of AXA IM – Real Assets and may be subject to change without notice. All information, analysis and conclusions herein present AXA IM – Real Assets’ current knowledge and market estimation at the time of its production. Nevertheless, it can come to unintended erroneous statements or presentations and the information may change at any time without previous announcements and/or notices to the recipient of this Material. Thus, a liability or guarantee for the up-to- datedness, correctness and completeness of the allocated informa- tion, estimation and opinion cannot be assumed. Where past per- formance, past experience and track record information is provided, this is not necessarily representative of future results: performance is not constant over time and the value of investments may fall as well as rise. No representation is made that any results or other figures indicated in this document will be achieved and that invest- ments will achieve comparable results that targeted returns. Due to simplification, this Material is partial and thus the information can be subjective. The information set forth herein does not purport to be complete and is subject to change without notice.

Responsibility
This document has been prepared and issued by AXA Real Estate Investment Managers, Marketing and Communication Team, Tour Majunga - La Défense 9, 6 place de la Pyramide, 92908 Paris La Defense Cedex.

Sources
The information and data used in this presentation has been sourced from a number of recognised industry providers. We believe it to be accurate and have taken reasonable care to con- firm this but cannot offer a guarantee that this is the case. Details of these sources are available on request.

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