Corporate overview

Clarion Partners has been a leading real estate investment manager for more than 38 years. The firm’s mission is to use 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 for our clients.

With $56.3bn in total assets under management for more than 400 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 approximately 300 employees and maintains a presence in strategic markets across the US and in Europe.

Clarion Partners is distinguished by a performance-driven approach, organisational stability and a mandate of accountability to our clients. 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 capitalise on current market opportunities.

Sector forecasts 

INDUSTRIAL: Amidst the recent economic slowdown, many key business demand indicators dipped; however, accelerating e-commerce has continued to carry the logistics sector. The top 100 retailers reported annual online sales growth of over 75% in May and June. US industrial property fundamentals remained generally healthy, and vacancy is still very low in top distribution locations. More delivery of consumer staples and e-grocery are driving leasing and development closer to consumers. In Q2, industrial rent collections remained approximately 95%. The national industrial vacancy rate rose to 4.7%, up 50bps year-over-year. This was also the largest quarter-to-quarter rise in vacancy since the end of 2009. Completions of 56.0m sqft outpaced net absorption of 19.2m sqft forthesixthconsecutivequarter. Industrial property is expected to continue to benefit from retailers’ sizeable investments in last-mile delivery. In Q2, industrial production, new orders, and the purchasing managers’ index (PMI) reached the lowest level since the 2009/10 period due to the broader economic slow-down, however, these metrics began to rebound in May and June as manufactur- ing and utility output picked up. In Q2, industrial transactions reached $10.3bn, down 49.7% year-over-year. Sales of individual assets remained relatively steady, whereas entity and portfolio sales declined. In Q2, the NPI industrial sub-index posted an annual total return of 10.3%.

OFFICE: US office market fundamentals have remained relatively healthy amidst some short-term COVID -19 dislocation, protected by long-term leases. Future sector headwinds stem from the loss of 2.4m office-using jobs and the rise of work-from-home (WFH). In Q2, the average office rent collection was approximately 95%. The increase in vacancy in 50 of 64 office markets may likely be attributed to both new supply and businesses scaling back on space. Completions of 7.8m sqft outpaced net absorption of –21.5m sqft. Pre-crisis, the sector had reported the healthiest rents and vacancies since 2007 nationwide; however, demand in dense gateway markets may remain weak for the foreseeable future due to the virus outbreak. Most corporate occupiers continue to offer workplace flexibility amidst COVID -19, and there has been a rise in sublease space in several large cities. Big tech has proposed long-term remote work policies. Co-working business growth has slowed significantly and is now viewed as a less stable, cash-flowing business due to short-term leases and weaker credit. In Q2, office transaction volume fell by 71.4% to $11.0bn year-over-year. Total sales in primary and secondary markets were nearly even. In Q2, the NPI office sub-index posted an annual total return of 4.0%.

RESIDENTIAL: In Q2, US multifamily property fundamentals remained relatively stable, with variations by market and segment. Rental housing has historically been among one of the most defensive of the major commercial property types during recession periods. In Q2, apartment rent collections averaged at about 95%. The US multifamily vacancy rate stayed near the 20-year low, although it rose by 40bps to 4.6% in Q2. New supply of 78,307 units outpaced net absorption of 21,069 units. Annual effective rent growth reached –0.6%, the first negative quarter since 2010. In Q2, multifamily investment sales declined by 70.4% to $13.9bn; however, this total sales volume was still well above all other commercial property types. Sales of garden-style assets were nearly double those of mid and high-rise properties. Sales in secondary markets have continued to greatly exceed those in primary markets in total dollar volume. In Q2, the NPI multifamily sub-index posted an annual total return of 3.0%. The garden-style and low-rise segments outperformed the sector average significantly.

RETAIL: US neighbourhood and community centre property fundamentals weakened over the second consecutive quarter with a drastic slowdown in store foot traffic amidst the on set of COVID-19.The national lockdown led to millions of brick and mortar retail job losses and an increase in bankruptcies. Asset managers continue to carefully monitor rent collections and store closings. Retailers with more developed e-commerce, curbside pick-up, and delivery services continued to fare better; however, enclosed malls recently reported the lowest occupancy in a decade. In Q2, retail rent collections improved steadily as businesses re-opened. The retail sector faces ongoing structural transformation, although stronger-credit and omni-channel chains at well-located Class A formats have been relatively more resilient. The retail sector has continued to report declining asset values. Most consumer spending still occurs at in-store formats. Outperforming retail formats, however, are largely premier mixed-use and urban-style assets in commercial districts and residential neighbourhoods with critical mass. Medical care, food and beverage and shipping services remain top store expansion categories. In Q2, retail transaction volume totalled $4.6bn, down 73.1% year-over-year. Deals across all formats declined except drug store-anchored retail. Single-tenant retail reported the highest total sales volume, while activity in non- major markets was more than double that of major markets. In Q2, the NPI retail sub-index posted an annual total return of –5.6%, mostly dragged down by mall and power center depreciation. 

HOTELS: In Q2, RevPAR growth fell by 69.9% to $28.0, occupancy declined to 33.5%(below the 2009 low of 54.6%),and ADR dropped by 37.1% to $83.6 year-over-year. Hotel segments with the highest occupancy were largely extended-stay, economy, interstate highway and drive-to resort. Prior to the COVID-19 the hotel industry was in a record-setting demand environment. However, occupancy hit an all-time low of 21.0% in early April and then slowly recovered for 11 consecutive weeks, reaching 46.2% near quarter-end. The hotel sector is bearing the brunt of the coronavirus economic crisis. According to Trepp, the cumulative CMBS hotel delinquency rate reached 24.3% in June. The distress in the sector has contributed to the rapid decline in deal activity. In Q2, transaction volume fell to only $600m, down 91.3% year-over-year. Investment sales levels in primary markets, the centres of business travel most impacted by COVID -19, fell most sharply. Trades in secondary markets were twice as high. In Q2, the NPI hotel sub-index posted an annual total return of –18.1%.

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, secu- rities. This information is intended for use by qualified recipients only.