Canada Life Asset Management is a London based asset manager responsible for managing more than £40bn 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 £987bn* 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 £2.7bn of property assets, as well as managing a £3bn real estate loan portfolio. We have been active and committed investors in the UK commercial property market for over 50 years. We have gained significant experience of invest- ing 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 more than 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 30 June 2020

Sector forecasts

Industrial: This sector has been one of the most resilient property sectors during the COVID-19 pandemic in 2020, driven by a strong increase in consumer demand for goods ordered online, which has fuelled demand from logistics operators for large-scale distribution warehousing assets and ‘last mile’ urban logistics units to satisfy consumer demand for same or next day delivery.

We remain positive on this sector in 2020/21 although we expect rental growth forecasts to be weaker than the strong growth seen over the last few years. Economic headwinds related to risks to the recovery as a result of a second wave of the coronavirus and the extent of lockdowns, combined with risks related to Brexit uncertainty, are likely to dampen the rental growth forecasts, although they will remain positive.

We expect standard industrial assets in London and the South East to outperform larger logistics assets in the rest of the UK, as they have a more diversified occupier base and supply is more limited, with a more constrained development pipeline.

Office: The office sector has been impacted by a period of rapid transformation and digitisation since the pandemic took hold in the first quarter of 2020, leading to an enforced lockdown and millions of office workers in the UK suddenly adapting to working from home.

At the same time, the economic recession caused by temporary enforced business closures has inevitably had a weakening effect on occupier demand, but a massive amount of fiscal stimulus provided by the UK government in the form of a £30bn Jobs Retention scheme and business loans packages, in addition to the Bank of England cutting the base rate from 0.25% to 0.1% in March 2020, has mitigated the impact on the office market.

As the government’s support measures are phased out, unemployment is likely to rise, which combined with the increased uncertainty surrounding Brexit and the UK’s future trading relationship with the EU at the beginning of 2021, our office rental growth forecasts assume that the short-term outlook for the rest of 2021 will be negative, but then positive rental growth forecasts will occur from 2022 onwards as the cyclical recovery takes hold.

Our medium to long-term forecasts assume that a major structural shift in the office market will occur, with more organisations adopting flexible ‘hybrid’ working practices, involving working from home part of the week and from the office the rest of the week, which will change the future role of the office and its design to incorporate more collaborative space enhanced by technology and increased wellbeing features to attract and retain the best talent.

Retail: The impact of the COVID -19 pandemic has been to accelerate the structural decline in large parts of the retail sector as consumers rapidly shifted their buying activity towards online shopping during lockdown as physical stores were closed. At the same time as online retail operators have benefitted from this trend, supermarket operators and those catering towards local convenience in the suburbs and areas away from city centres, have benefitted.

The ongoing polarisation in the retail market has been exacerbated and going forward, while non-essential retail stores have re-opened, many areas will still be subject to local lockdowns. Social distancing measures combined with shoppers avoiding city centres and large enclosed areas, also mean that we expect shopping centres to continue to see large falls in rental and capital values over the next few years, while high street units in town and city centres will also continue to see values fall.

The retail market is expected to remain highly polarised between fashion, department store, leisure and hospitality operators, who will remain challenged and face more administrations and store closures, and more resilient supermarket and local convenience operators, who are expected to see some modest growth potential.

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.