Corporate overview

Clarion Partners has been a leading real estate investment manager for more than 39 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 $63bn 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 headquartered in New York, has nearly 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 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 capitalise on current market opportunities.

Sector forecasts 

INDUSTRIAL: US industrial property fundamentals are the strongest in over a decade. Demand has remained robust, powered by the ongoing expansion of e-commerce; the pandemic rapidly boosted the market share of e-commerce as a percentage of core retail sales to about 20%, up from 16% in early 2020. Companies are occupying space at record levels to handle surging online sales. In Q2, the national industrial vacancy rate declined by 20bps to 4.0%, on par with pre-pandemic levels. Net absorption of 84.8m sqft was the third highest quarter on record and well outpaced completions of 51.7m sqft. Leasing volume was strong in nearly all markets.

Global and domestic trade have generally rebounded to above pre-COVID levels, and US industrial rents are at an all-time high. Nationwide, new warehouse completions have moderated for two consecutive quarters; however, new devel- opment remains at a record high. As of Q2, 36% of the warehouse space under construction had been pre-leased, a slight decline relative to recent quarters. E-commerce, as a share of total retail sales, is expected to continue to rise in coming years. Class A industrial property required for e-fulfilment remains a small share of total stock (less than 20%), and there remains a shortage nationwide. New development has continued to diversify by market beyond the established hubs due to land and building cost constraints, as well as population shifts. In Q2, industrial transactional volume reached $29.8bn, up 138.8% year-over-year.

OFFICE: The US office sector continued to face a low-demand environment due to the lingering impacts of work-from-home (WFH). In Q2, the national vacancy rate rose to 16.5%, a 350 bp increase year-over-year; the rate in CBDs rose by 70bps to 15.8%, while it increased in the suburbs by 30bps to 16.8%. Sixty out of 64 US markets reported a rise in vacancy year-over-year, with all of the largest US office markets reporting vacancy rates of over 10%. In Q2, completions of 13.8m sqft outpaced net absorption of –7.9m sqft (the fifth consecu- tive quarterly decline). Elevated vacancy may continue downward pressure on traditional office asking rents in certain markets in 2H 2021.

The impacts of COVID-19 may accelerate change in traditional office arrange- ments and shift trends in WFH, densification, and suburbanisation. Some tech and financial firms have proposed permanent remote work policies. While this is still a developing situation, WFH may continue to add near-term pressure on leasing and rents. Still, large tech tenants remained very active and continued to expand.

In Q2, office transaction volume reached $26bn, up 92.1% year-over-year. Overall sales in the suburbs were more than double those in CBD markets, a trend that has accelerated in recent years. In Q2, the NPI office sub-index posted an annual total return of 3.3%. The suburban office segment significantly outperformed the CBD segment over the year.

RESIDENTIAL: Overall, US multifamily property fundamentals strength- ened significantly in Q2. Over the past year, US multifamily demand remained robust, with rents still at all-time highs in most markets, excluding a few large cities. In Q2, multifamily leasing soared as many returned to normal living arrangements that shifted during the pandemic. A few of the largest US cities most impacted by increased departures from the city centres last year reported a strong comeback in absorption. US annual effective rent growth rebounded to 0.5%, with outperformance in the Sun Belt and suburban locations. Nationwide,vacancy rates declined by 60bps to 4% (below the pre-pandemic level), driven by demographics, affordability, and quality-of-life factors.

In Q2, multifamily investment sales reached $52.7bn, up by 238.2% year- over-year, well outpacing all other sectors. Sales of garden-style assets nearly doubled those of high-rise properties, and transactions in secondary markets have recovered faster than those in primary markets. Sales in suburban non-major markets rose sharply as a share of all multifamily through 1H 2021.

RETAIL: In Q2, US neighbourhood and community centre fundamentals continued to improve after the initial pandemic shock slowed foot traffic. While consumer spending was salvaged by widespread federal stimulus measures, ongoing retail bankruptcies and store closings will likely remain a headwind for the industry. Retail’s performance and recovery has varied greatly by segment. Necessity retail, such as grocery and drug store-anchored neighbourhood and community shopping centres, along with mixed-use and single-tenant formats, have fared better relative to big-box centres, enclosed malls, and high-street stores. In Q2, the availability rate for neighbourhood and community shopping centres declined by 30bps to 8.8%.

In Q2, the NPI retail sub-index posted an annual total return of –1.3%, mostly dragged down by mall depreciation. However, the quarterly return rebounded to 0.9%, the first positive return since Q4 2019. 

HOTELS: In Q2, the US hotel industry recovery accelerated, and demand fundamentals were the strongest since the onset of the pandemic. Over the year, Rev-PAR and ADR rose by 160.4% and 43.2%, respectively, and occupancy reached 61%, just below the last pre-pandemic high in Q4 2019. Hotel segments with the highest occupancy levels were suburban, airport, interstate, and small towns. Given a stronger GDP growth outlook, US hotels are in a better position for the next year with the prospect of more corporate travel, international visitation, and domestic intercity travel. In recent months, domestic daily air travel has rebounded and remained near pre-COVID levels. Significant pent-up demand in travel and tourism has given a boost to the industry outlook. The lingering impact of the pandemic, such as more virtual corporate meetings, and the potential for new variants remain key risks in the future.

By the end of Q2, 22 of the top 25 US hotel markets reported occupancy levels over 60%, however, demand remained lowest in urban locations. Leisure travel has recovered more quickly, while business travel has been slower to return to pre-pandemic levels. The hotel industry expects a stronger rebound if and when herd immunity is achieved. 

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 pro- jections 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.