Corporate overview

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 $81.4bn in total assets under management for more than 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 head- quartered in New York, has over 300 employees and maintains a presence in strategic markets across the United States and in 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 opportunity 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.

 

Sector forecasts 

INDUSTRIAL:
US industrial property fundamentals remained historically strong, powered by omnichannel consumption. Third-party logistics and retail occupiers continued to take large blocks of Class A space to serve distribution and last-mile delivery around many US population centres. In Q2, the national industrial vacancy rate declined by 10bps to 2.8%, down 70bps year-over-year, and the lowest level on record. For the first time since Q3 2020, completions of 64.6m sqft outpaced net absorption of 60.2m sqft. Average asking rent growth climbed to 12.0% year-over-year, a significant acceleration from the prior three quarters, and the fastest pace in over 20 years; however, leasing volume fell slightly over the year as e-commerce sales growth returns to its long-term trend.

Nationwide, new warehouse completions were up by 5.7% year-over-year, a moderation from recent historically high levels. As of Q2, just under 26% of the warehouse space under construction had been pre-leased, a decline from about 40% two years ago. Class A industrial property required for e-fulfillment remains a small share of total US industrial stock (less than 20%). The shortage of high-quality stock and widespread functional obsolescence is likely to lead to a steady pace of new construction and redevelopment. Through 1H 2022, industrial transaction volume reached $74.6bn, up 34.8% year-over-year.

OFFICE:
In Q2, the US office sector continued its slow and steady recovery with increasing leasing activities across most markets. The national office vacancy rate rose by 10bps to 16.9% for the second consecutive quarter after an improvement at 2021 year-end, with the suburbs declining and CBDs rising. For the first time since 1998, the downtown vacancy rate (17.0%) surpassed the suburban vacancy rate (16.8%). Completions of 10.0m sqft exceeded net absorption of 6.2m sqft. Nevertheless, US annual asking rent growth reached 1.4%, the highest level since Q2 2020, and the third straight quarter of positive annual rent growth. Fifty-five out of 65 markets reported positive rent growth. Most markets, however, still have vacancy levels above Q2 2021, with 37 markets reporting increases or no change. Elevated vacancy and a slower-than- expected return to office may continue to soften office rents in select markets.

Through 1H 2022, US leasing activity was up in 65% of markets relative to activity during 1H 2021 and office transaction volume rebounded to $57bn, up 17.0% year-over-year. Overall sales in the suburbs were more than double those in CBD markets; this shift has accelerated in recent years. In Q2, the NPI office sub-index posted an annual total return of 5.9%, a moderation from 6.1% in 2021. The suburban office segment significantly outperformed the CBD segment.

RESIDENTIAL:
In Q2, US multifamily property fundamentals remained near the strongest on record; however, new supply and demand conditions shifted. The US vacancy rate increased by 70bps from a historic low of 2.4% to 3.1%, which is still well below pre-pandemic levels. New supply of 78,835 units exceeded net absorption of -38,738 units. This was the first time net absorption turned negative since Q4 2013. US annual effective rent growth reached 14.6%, the third straight quarter with a double-digit increase, yet a slight quarter-over-quarter decrease.

The large US cities most impacted by departures from urban centres in 2020 have largely rebounded, and the suburbs of major employment hubs and tech clusters have remained very strong. Low-rise and garden-style rental housing, along with single-family rentals, are increasingly sought-after, as many continue to migrate to the Sun Belt and suburbs for greater affordability and quality of life.

Year-to-date multifamily investment sales rose year-over-year by 53.1% to $154.6bn, well outpacing all other sectors. Transaction volume in secondary markets was well above that in primary markets, and all together represented 85% of total activity.

RETAIL:
US neighbourhood and community shopping centre occupancy continued to improve with availability falling well below pre-pandemic levels. In Q2, the availability rate declined by 30bps to 7.3%, the lowest level on record. Net absorption remained strong at 9.7m sqft, well outpacing completions of 662,000 sqft. Still, demand has continued to vary by segment. While retail sales have remained at an all-time high, which has benefited some shopping formats, enclosed malls and high-street retail have continued to report more muted demand. Absorption trends have remained strongest in the Sun Belt and suburbs.

In Q2, the NPI retail sub-index posted an annual total return of 7.9%, an acceleration over the quarter and 2021, boosted by the outperformance in neighborhood shopping centres and dragged down by regional mall depreciation. However, the quarterly return moderated relative to Q1.

HOTELS:
The US hotel industry recovery accelerated significantly over 1H 2022. In Q2, occupancy reached 66.9%, surpassing the level of 66.1% in the full- year 2019. RevPAR and ADR also climbed 9.4% and 14.3%, respectively, above the same period in 2019. Year-to-date, however, the occupancy level at resorts continued to exceed that of urban locations. Given the reduced pandemic threat, US hotels are in a much better position for the next two years as corporate, inter- national and domestic intercity travel rebound fully. Over the quarter, domestic daily air travel trended at pre-COVID levels. The lingering impacts from the pandemic, such as more virtual corporate meetings and the potential for new COVID variants, however, remain key risks and may be a drag on occupancy in the future.

In Q2, all of the top 25 US hotel markets reported occupancy levels below the same period in 2019; however, both ADR and RevPAR rose above the 2019 prior peak as inflation surged. All location type occupancies were below pre-COVID levels except small metros/towns. Leisure travel demand has continued to be stronger than business travel, although corporate bookings and weekday demand accelerated significantly over the course of Q2, as more workers returned on a more full-time basis to the office. A greater recovery in occupancy is expected in the coming years.

 

Performance verification

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.

 

COMPLIANCE STATEMENT

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 complete- ness 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.