Canada Life Asset Management is a London based asset manager managing more than £41.9bn* of equities, fixed income and property. We have been active in the UK for more than 100 years, having first established our life insurance business here in 1903. Our focus is on the long-term and we believe that active management is the best way to add value for our clients and generate superior returns. Our parent company, Great-West Lifeco, is one of Canada’s largest financial companies with over £1,341bn* consolidated assets under administration.

By being part of a much larger group, we are able to draw on a pool of expertise and resources that enables us to better serve our clients and help them meet their objectives. Canada Life Asset Management currently manages £2.6bn* of property assets, in addition to being active and committed to investors in the UK commercial property market for over 50 years. We have gained significant experience of investing in and managing commercial property within the UK, Republic of Ireland and Western Europe.

Our property investment professionals have a long tenure at Canada Life Asset Management, providing our investors with a depth of experience in managing and investing in commercial property throughout various market cycles. Canada Life Asset Management has also been active in the real estate lending market for over 25 years with a dedicated team of investment professionals who focus on commercial real estate finance. In addition to providing finance for the acquisition of good quality assets in the commercial property sector, we also provide finance to corporate borrowers such as regulated social landlords and businesses looking to refinance their real estate holdings.

*As at 31 December 2021

Sector forecasts

Industrial: This sector has largely remained resilient throughout the COVID-19 pandemic and has been one of the best performing sectors despite a number of economic headwinds affecting the sector. Take-up consequently held up strongly in the first half of 2021, especially in the logistics sub-sector, driven by the strong growth in ecommerce and 3PL activity.

We continue to be positive on this sector for the rest of 2021 and 2022. A strong and recovering economy will continue to support demand, even as online sales will ease with the reopening of physical retail, while tight supply conditions will boost rental growth in the near term. An increase in new developments over the medium to long term will weigh on rental growth forecasts but over the next few years we are forecasting strong rental growth, especially for standard industrials in the most supply-constrained regions of London and the South East, and for large-scale distribution warehousing.

In terms of pricing yields on prime industrial assets have now fallen to record levels, leading to concerns about overpricing in the most sought-after locations.

Office: The office sector has continued to be impacted by the increase in remote working due to the pandemic. Going forward, in the recovery phase many working patterns developed during the pandemic will become estab- lished with more remote and ‘hybrid’ working becoming the norm among major office occupiers.

Occupiers are therefore changing their office space requirements to enable greater team working and collaboration and are focusing on high quality office assets, which incorporate enhanced sustainability and health and wellbeing aspects. Occupiers will expect more from their landlords to entice them to commute to the office, so a closer, more ‘hands-on’ approach is required to better understand tenants’ individual requirements.

Marginally positive rental growth is forecast for the sector in 2021, with stronger growth from 2022 onwards. However, since Central London has been lagging behind the regions throughout the pandemic as more people have worked from home there for a prolonged period, we expect it to continue lag in the recovery. We are forecasting total returns of between 6-8% pa on average for offices over the next five years as we remain positive on the prospects for the sector, although there will be considerable differences in performance between assets, with prime assets in well located ‘Big 6’ office centres outperforming, followed by London and the South East.

Retail: The retail sector has been hit hard by the enforced lockdowns and closures of non-essential retail stores throughout the pandemic, with their recent reopening boosting retail sales and aiding the recovery in the market. Essential retail formats such as food stores and supermarkets, as well as retail parks, have remained relatively resilient, shopping centres and non-essential high street shops have been the most exposed, and therefore will continue to lag the retail market recovery.

While the worst of the rental correction appears to now be over, going forward the removal of the government furlough support scheme may be a further setback. The retail market recovery is therefore expected to be slow as online demand eats into physical sales over the coming years. We are forecasting rental growth to remain negative over the next few years on average, with the key exceptions of supermarkets and the best retail park schemes in good locations, which are forecast to see modestly positive rental growth.

Pricing is attractive in the retail sector as average MSCI yields have risen to around 300-350bps above office yields, but this reflects low investor demand for retail assets and a lack of liquidity in the investment market. However, it could give rise to some select attractive buying opportunities of assets which could either be repurposed to other uses or converted to local convenience or experiential retail assets.

Investment Principles & Strategy

We aim to deliver attractive long-term returns through a combination of income and capital growth, investing directly in commercial property. Our investment principle is based upon creating a well-diversified portfolio across different property sectors, geographic regions, lease maturities and investment sizes. We aim to maximise net income from a portfolio investing in high-quality assets in strong locations with an emphasis on letting vacant space, lease renewals and re-gears, rent reviews, refurbishments and some development. We believe that risk controls and effective reporting are central to a well-informed and managed investment style. Portfolio ‘risk’ is adjusted by reference to the economic cycle. We believe that detailed research and analysis of markets and individual stocks is vital in delivering optimum property returns. Evaluation of environmental factors is also important, as such risks will increasingly impact rental growth expectations and levels of depreciation.

Performance verification

Funds under management are independently benchmarked by MSCI, the leading provider of performance measurement and benchmarking in the real estate sector. Benchmark fund performance is also provided by Morningstar and AREF.

COMPLIANCE STATEMENT

The information contained in this document is provided for use by investment professionals and is not for onward distribution to, or to be relied upon by, retail investors. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice. This document is issued for information only by Canada Life Asset Management.

This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available at www.canadalifeassetmanagement.co.uk. Canada Life Asset Management is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no.03846821),CanadaLifeLimited(no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.