Clarion Partners has been a leading real estate investment manager for more than 40 years, using the judgment of our experienced professionals as well as our proprietary research to design real estate investment solutions that create value and have the potential to deliver superior returns. We are distinguished by a performance-driven approach, long-term organisational stability, and a mandate of accountability to our clients.
With $79.8 bn in total assets under management for approximately 500 institutional investors around the world, Clarion offers a broad range of equity and debt strategies across the risk/return spectrum – from core/core-plus to value-add/opportunistic. The firm, which is headquartered in New York, has over 300 employees and maintains a presence in strategic markets across the United States and Europe. Our strength lies in a well-established network of experienced professionals who bring a deep knowledge of local markets to every investment decision.
Investment principles & strategy
Experience has taught us that attractive investment opportunities can be identified at every phase of the real estate cycle. Clarion Partners invests in high-quality assets across key property types in major markets throughout the US and specifically targets logistics facilities across Europe. We carefully screen each acquisition using in-depth research and rigorous due diligence, focusing on properties that compete effectively over time and are located in markets with consistent capital market liquidity.
Strategic corporate development
Clarion Partners offers investment options in both commingled fund and separate account formats for institutional investors. Clients can select from a broad range of debt and equity investment options to build their real estate portfolios, including diversified core portfolios, sector-specific accounts, core, core-plus and value-add products as well as opportunistic vehicles. Going forward, we will continue to build our business by offering our clients real estate solutions that have been tailored to support their objectives and that capitalize on current market opportunities.
In Q2, US industrial property fundamentals remained strong; however, new supply is beginning to catch up with demand. Global and US supply chain stress indices have recovered to pre-pandemic levels, and cargo volumes are largely well above pre-COVID levels with continued resilience in consumer spending. Over the quarter, the national industrial vacancy rate rose by 30bps to 3.7%, still well below the long-term average of 6.8%. In most markets, vacancy levels remained at or near all-time lows. In Q2, net absorption moderated to 31.4 million sf, falling short of completions of 99.2m sqf. Nonetheless, average asking rent growth reached 10.5% year-over-year, the sixth straight quarter of double-digit growth.
Leasing velocity moderated in most markets over the year; nevertheless, out of the 75 markets tracked, 47 reported positive absorption figures in Q2. In Q2, US industrial rents continued to rise to all-time highs in most markets, although the pace of absorption slowed in many.
In Q2, new warehouse completions remained high relative to historical levels yet moderated slightly over the quarter. As of Q2, 19% of the warehouse space under construction had been preleased, a decline from closer to 50% in recent years. New starts have declined by about 45% in recent quarters due to tight construction financing, which should lead to lower new supply by late 2024 and 2025. In 1H 2023, industrial transaction volume declined to $42.5bn, down 49.4% year-over-year.
In Q2, the US office sector recovery stalled with a slowdown in leasing activity. Physical office occupancy averages at about 50% of pre-COVID levels and varies considerably by weekday. In Q2, the U.S. office vacancy rate rose by 40bps to 18.2%, with vacancy in both the CBDs and suburbs rising. Forty-nine out of 69 markets have reported vacancy increases year-over-year.
Net absorption fell to -8.5m sqf, the second-largest decline since Q1 2021, while completions reached 8.3m sqf. National annual asking rent growth moderated to 0.5%, still the seventh straight quarter of positive growth. Overall, more muted occupier demand has continued to impact absorption dynamics and led to declining occupancies. Through Q2, leasing activity moderated relative to 1H 2022, improving in only 31% of all markets tracked (26 out of 86). Recent absorption trends have continued to favour Sun Belt locations and the Class A segment.
In Q2, office completions remained near the lowest level since 2014. The new supply outlook has moderated, partially due to ongoing space efficiency trends, and is likely to remain muted overall. Through 1H 2023, office transaction volume fell by 61.7% to $24.7bn. As a share of all investment sales, suburbs represented 71%, whereas CBD sales were 29%. In Q2, the NPI office sub-index posted an annual total return of -14.5%, while the quarterly return was -5.1%.
Overall, US multifamily property fundamentals remained healthy amid strong job and wage growth despite the ongoing wave of new supply. In Q2, the national vacancy rate increased for the fifth straight quarter, rising by 10bps to 5.0%. The vacancy rate has risen by 190bps year-over-year and is also above the pre-pandemic level of 4.3%. Net absorption rebounded strongly to 70,184 units, while completions surged to 91,424 units (well above the long-term average). US annual effective rent growth moderated to 2.6%; nevertheless, nearly all 70 markets tracked reported positive rent growth.
US multifamily rent levels have remained at all-time highs, and demand conditions have strengthened. In Q2, multifamily vacancy increased across all markets year-over-year. On the other hand, absorption was positive in 58 out of 69 markets tracked. SFRs have continued to play a role in institutional CRE portfolios. Annual SFR rent growth reached 3.4% as of May, a continued moderation since rent growth peaked in early 2022.
In 1H 2023, multifamily investment sales declined year-over-year by 67.7% to $55.6bn, still well ahead of all other sectors. In Q2, the NPI multifamily sub-index posted an annual total return of -5.1%, while the quarterly return fell to -1.0%. Garden-style and low-rise segments fared better than the sector average.
US neighbourhood and community shopping centre fundamentals continued to strengthen. In Q2, the availability rate declined by 10bps to 6.7%, a two-decade low. Net absorption of 5.1m sqf outpaced completions of 1.8m sqf. Demand has improved in all segments. Over the year, US average asking rent growth reached 2.7%, the third-highest level since 2021.
Neighbourhood and community centre demand conditions have improved amidst a return to normal foot traffic and strong consumer spending. New demand has continued to outpace completions, and landlords have more pricing power. The most in-demand retail assets are in high-density submarkets with strong demographics. Restaurants, medical care (or ‘Medtail’), discount stores, and grocery remain top store expansion categories.
In 1H 2023, institutional investor interest in retail properties moderated relative to the strength of recent years along with the broader economic slowdown. Retail transaction volume decreased by 47.8% to $27.4bn year-over-year, with all formats down.
The US hotel industry continued to recover; however, overall rooms sold remained below pre-pandemic levels. In Q2, average occupancy reached 66.3%, still below the peak of 69.8% during the same period in 2019. RevPAR continued to climb to well above pre-COVID levels, up by 11.9%. Nationwide, there was a more meaningful recovery of both leisure and business travel into spring. US hotels are in a much better position for the next two years as corporate, international, and domestic intercity travel continues to rebound more fully.
In Q2, occupancy in all major markets and all location types remained just below the same period in 2019. Over the year, occupancy at urban locations continued to rebound more significantly with a greater return to the office and rebound in corporate travel. A greater recovery in occupancy is expected in the coming years, which is likely to sustain solid RevPAR growth. Furthermore, new supply growth is likely to remain muted until both leisure and business travel fully recover.
Hotel industry capital markets have been relatively healthy. Through 1H 2023, hotel transaction volume reached $11.3bn, down 55.7% year-over-year. In Q2, the NPI hotel subindex posted an annual total return of 12.9%, while the quarterly return remained a positive 4.0%, the highest among all sectors.
Certain funds in the US private equity sector measure their performance against NCREIF Property Index, the most widely used benchmark for private equity real estate institutional investments, as well as the NCREIF ODCE Fund Index. Investments in other real estate sectors measure performance against benchmarks specific to their sector and strategy.
Statements regarding forecasts and projections rely on a number of economic and financial variables and are inherently speculative. Forecasts relating to market conditions, returns and other performance indicators are not guaranteed and are subject to change without notice. There can be no assurance that market conditions will perform according to any forecast. Past performance is not a guarantee of future performance. Information contained in this report, including information supporting forecasts and projections, has been obtained or derived from independent third-party sources believed to be reliable but Clarion cannot guarantee the accuracy or completeness of such information. This is not an offer to sell, or solicitation of an offer to buy, securities. This information is intended for use by qualified recipients only.