Founded in 1986, Cohen & Steers is a leading global investment manager specialising in real assets and alternative income solutions.
Cohen & Steers is globally recognised as a pioneer and leader in real estate securities and liquid real assets in terms of our long-term performance, assets under management, range of portfolio strategies offered, and the experience and depth of our investment team rooted in fundamental-driven research and portfolio management processes. As of 30 June 2023, the firm has $80.4bn AUM, with $58.3bn in listed real estate.
Our core values of excellence, innovation, focus, and inclusion have remained consistent for 35 years and have guided our decisions, ensuring consistent results for clients, shareholders, and employees.
With a team of 350+ professionals, our global presence is felt across three continents, spanning five offices. Our culture, steeped in excellence and inclusion, fosters decision-making, nurtures emerging leaders, and ensures our continued contribution to our clients’ success.
Investment principles & strategy
The philosophy that guides our real estate strategies is based on the following principles:
- Market inefficiencies: Equity markets often misprice real estate due to complexities in understanding local conditions, property supply demand, tenant financial health, market technicalities, and unique real estate metrics.
- Research advantage: Consistent alpha generation demands a robust research platform, offering an edge in spotting undervalued securities.
- Talent is key: Long-term success hinges on attracting and nurturing top talent. A team-centric approach emphasising stability and collaboration equips us to navigate real estate and market fluctuations.
- Risk management: Achieving superior risk-adjusted returns requires a holistic, multi-faceted risk management strategy.
- ESG integration: Environmental, social, and governance (ESG) factors are vital for sustainable practices. We incorporate ESG analysis into our securities evaluation and portfolio building, enhancing our understanding of associated risks and opportunities.
ACA Performance Services, LLC provides GIPS compliance verification services for Cohen & Steers composites. Please note that Ashland Partners provided GIPS verification for the firm from January 2005 until it was acquired by ACA Performance Services, LLC in 2017
For nearly a decade, the industrial sector led the US in performance. With the tailwinds of consumer companies adopting the direct-to-consumer business model, the demand for warehouses outstripped the supply available, which led to a spike in rent growth, which encouraged investors to pay higher multiples (or lower cap rates). The demand for space from users and investors inflated the price of warehouses across the country and led to a development boom, which was all exacerbated by a historic decline in interest rates that saw the US 10-year treasury fall from ~5% in 2007 to ~0.5% in 2020.
Today, the sector appears to be imbalanced in the exact opposite direction. Too much supply is being delivered to the market at a time where users are no longer taking space. Builders of this glut of supply are now trying to sell these assets, but they were built at a price that needed yields (cap rates) to stay lower for longer, and therefore the transaction market has come to a halt.
With borrowing costs higher than anyone expected, demand softening and supply continuing to deliver, we expect the price of industrial real estate to fall in the near term.
The office sector is currently experiencing a challenge to its fundamental existence across the entire globe. In the US, once stalwarts of the real estate community, the Gateway markets (New York, Boston, Washington DC, San Francisco, and Los Angeles) offered a stable cash flow profile with long-term growth potential as these cities had perceived natural barriers to entry, which limited supply, and they also held a monopoly on the jobs people were attracted to in their respective industries (finance, education/life sciences, government, technology, and entertainment, respectively) which led to population growth. Similar to the industrial sector, that supply/demand imbalance led to a rent spike that then led to a development boom and investors buying assets at prices that relied on the continuation of that growth.
Following the 2020 pandemic, technology enabled employees to move around the country, but keep their jobs, and so the monopolies the Gateway cities had over their industries finally weakened. As employees moved, so did companies. Employees moved to areas that had a cheaper cost of living and an easier commute, and companies moved from high tax/cost of business locations to what investors call the ‘secondary’ cities across the sunbelt and mountain west.
Office is facing a secular decline in usage in all cities but unlike previous economic cycles, the ‘secondary’ cities have been leading the recovery. Employees have been slow to return to the office in all cities, but the sunbelt has fared better, given the tailwinds of job growth and population growth in those markets.
We are also observing the polarisation of the office sector beyond the US region. We expect less pressure on the long-term growth profile for office landlords, given the lower commoditisation of supply and shift towards remote working. Workers may be in the office less, but their expectations for the office are greater when they are, causing certain markets (eg, London’s Canary Wharf) to face the challenge of repurposing office assets to attract office space occupants. Still, we have observed meaningful increases in vacancy. Specific office markets, such as Tokyo’s, have seen an acceleration of demand, as decelerating supply trends and economic strength bolster fundamentals.
The residential story in the US is similar to the other darlings of the 2010s. As the millennial cohort graduated from college and moved to cities for their first jobs, they needed apartments, which made multifamily apartments one of the first sectors to recover its value following the Global Financial Crisis.
Years of rent growth then led to a development boom of apartments across the country and investors similarly were found chasing performance and pushing prices. We expect pricing for multifamily apartments to broadly decline in the near term, but similar to last cycle, some markets will recover sooner as they are better equipped with in-migration and job growth to consume the delivery of new supply.
In addition to shifting migration patterns, the US population has also changed dramatically. The millennial cohort is no longer moving out of the basement and into apartments, but rather into homes, with spouses and families. After the GFC, which saw a glut of homes in the sunbelt markets stay vacant, homebuilders were tentative in starts and so began a decade of undersupplying houses to the US, which has left us in a large deficit across the country. In short, the supply that exists was built for the baby boomers, which is to say its in the wrong format and in the wrong location for millennials.
Transaction volume is down in the housing sector as buyers cope with the reality of new mortgage rates, and sellers are locked into their homes with cheap financing. However, upon stabilisation of rates, we expect buyers to continue re-emerge.
Single-family REITs are the newest entrants in US residential listed markets, forming in the wake of the mortgage crisis of 15 years ago. The technical barriers to scale that had previously held back such businesses are no longer impediments, and we anticipate that these companies will benefit from the long-term demographic shifts.
Global listed markets for residential businesses have seen significant underperformance over the past year as central bank hawkishness has changed the underwriting for asset values. As more leveraged developers are forced to sell land and assets at discounted prices in Australia, we expect certain well-capitalised listed companies to benefit from attractive acquisition and development opportunities. German residential landlords are still necessary for deleveraging following previous growth at very low interest rates. We have long avoided allocation to the overleveraged property developers in mainland China.
Unlike the other sectors, US retail went through its over supply issue in the back half of the 2010s. Under threat of existence from e-commerce, retail real estate has largely been out of favour from investors from fear of the ‘retail apocalypse’.
Despite the lower interest rates pushing supply to be developed in other sectors, retail shrank across the board. As department stores’ desirability declined and retailers shifted more resources to warehouses/ecommerce, ‘B’ malls began closing and retailers shrank their footprint out of strip centres and power centres, which led to flat/negative rent growth across the country.
That backdrop gave the sector the time it needed to repair itself. With no new meaningful amount of supply delivered since 2008, a healthy US consumer, and retailers finally embracing the internet to create the omni-channel and BOPIS (buy online, pick up in store) distribution strategies that work with shopping centres, as opposed to replacing them, retail real estate appears to be the healthiest of the bunch.
Those fundamentals are not yet been appreciated by investors, and therefore, pricing is at a level that appears attractive, relative to the cost of debt and other sectors. However, we are mindful of the impacts that elevated inflation and a potential slowdown in the jobs market could have on the US consumer.
Limited retail development in global markets has faced a different magnitude of demand destruction than in the US markets. In Europe, landlords have benefited from indexing increases in rents due to inflation. Retailer sales and shopping demand have remained strong despite the macro headwinds. Asia retail markets have degrees of variation with Japan having accelerated rental growth for discretionary retail landlords, whereas the savings rates in other parts of Asia have made us more cautious on sector performance.
Strategic corporate development
For over 35 years, Cohen & Steers has innovated investment solutions for institutional and retail clients. Our mission is to lead in managing real assets and alternative income strategies, emphasising strong performance, client relationships, and controlled growth. Our three to five-year growth strategy aligns with this vision.
Central to our approach is research and active portfolio management. As pioneers in listed real estate, we’ve launched strategies to leverage evolving market opportunities. We introduced our first private real estate fund and initiated the Cohen & Steers Income Opportunities REIT, Inc. (CNSREIT). As financing becomes more challenging, we anticipate emerging opportunities in private real estate.
We prioritise delivering exceptional performance and top-tier client service to meet evolving client needs. Recognising the growing investor interest in Asia to allocate to real assets, we understand the need for diversification and total return potential, especially in times of heightened inflation. Our distribution leadership is expanding in Asia to support emerging demand across institutional and wealth channels by opening an office in Singapore.