Founded in 1966, Heitman is a global real estate investment management firm. We operate in North America, Europe, and Asia-Pacific, in public and private markets, executing debt and equity strategies across the return spectrum. Through extensive research, innovative investment products, a seasoned management team, and hard work from some of the most talented professionals in the industry, Heitman has the experience and the resources to capitalise on opportunities and achieve our clients’ investment objectives. Our three complementary business units are:
- Private Real Estate Equity: Investing in direct real estate in North America, Europe, and Asia-Pacific on behalf of our commingled funds and separate account clients
- Public Real Estate Securities: Investing in publicly traded real estate securities in North America, Europe, and Asia-Pacific via separate accounts, UCITS portfolios, and a mutual fund, acting as a sub-advisor, and additionally participating in UMA programmes
- Real Estate Debt: Origination and management of debt investments secured by real estate in North America.
Investment principles & strategy
Heitman is a research-driven investment firm. Our strategies reflect constant analysis of economic and demographic trends, property market shifts, and capital flows. In addition, Heitman’s various business lines include public market professionals, direct property investors, debt investment professionals and global resources, fostering a creative atmosphere within Heitman. This translates into an information exchange that helps us stay abreast of changing conditions in all areas of real estate. We then use this information to create innovative strategies designed to meet or exceed our clients’ objectives and expectations.
Strategic corporate development
The firm’s business plan for the next three years is to selectively grow assets under management across our three business units. Our business plan is consistent with the firm’s mission, which is to be the leading real estate investment management firm by consistently outperforming benchmarks on both an absolute and a risk-adjusted basis, and by providing exemplary client service. We do not seek to be the biggest real estate investment manager in terms of assets under management, but rather to grow our business organically by delivering strong performance and excellent client service. As a result, the growth path we have set is a measured one.
INDUSTRIAL: The industrial sector has been resilient during the pandemic, as increased online shopping has driven demand from omni-channel and online retailers. Greater adoption of homeworking and restaurant restrictions have also spurred demand from supermarkets. Take-up from these sectors has mostly offset weaker demand from 3PLs, manufacturers and physical retailers. Occupancy and rent collection have thus held up better than during the Global Financial Crisis. However, the more exposed sectors still account for 40% of big box demand in major markets, and can lead to localised risks.
The weak supply pipeline has helped. In Q3 2020, only a third of forthcoming industrial supply was speculative. The predominance of bespoke schemes implies that vacancy will increase only modestly in 2020–21. Some countries like Spain face greater supply risk, while Germany, with its land shortages and robust demand, should maintain low vacancy under 3%.
Logistics investment has held up well; Q1– Q3 volumes of €24bn was up by 3% over the preceding three-year average. Pricing for prime assets has tightened in key markets, with only limited softening in secondary yields. Stiff competition for big box assets will continue; smaller assets may offer a less crowded field to value buyers. Smaller units near urban cores, which are limited in supply, will remain attractive to investors and occupiers.
OFFICE: The rethinking of long-term office requirements has been an unexpected consequence of the pandemic. Most office occupiers report minimal impact on productivity since remote working became widespread in spring 2020. As European office utilisation rates are lower than in other regions (yet target utilisation is higher), there is a clear basis for lower office footprint. Short-term demand may fall further as recessionary conditions push firms to cut staffing and property costs. In the longer term too, flat growth in urban working age populations is likely to pose a serious challenge.
Occupiers will focus on driving collaboration and creativity in the office post-pandemic. The intangible costs of remote working should counter any permanent shift away from the office. Looking at supply, net completions in major markets are trending higher in 2020–21, raising vacancy risk especially in London and Paris and putting negative pressure on rents.
Investment volume of €67bn during Q1– Q3 2020 was down by –28% on the preceding three-year average. Except for fortress assets, office pricing has weakened and should worsen further in 2021. Incipient distress may enable acquisition of mispriced assets with long-term value potential, especially in flexible and co-working spaces, where short-term disruption masks a more favourable long-term outlook.
RESIDENTIAL: Rented-residential should remain an outperforming sector in coming years. The outlook is supported by a wide demand-supply gap, inelastic demand, fiscal support to households, rent regulation, and weakness in the for-sale market. The broad trend of high occupancy and rent collection should continue in most markets, accelerating the inflow of institutional investment.
The outlook is brightest in Germany and the Netherlands, where governments have extended furlough schemes until 2021. Rent regulation serves to extend tenancy, reduce turnover, and improve affordability. Transaction activity has remained robust. Investment volume of €31bn in Q1– Q3 2020 was up 3% on the preceding three-year average. Valuations remain similar to pre-COVID levels, albeit with greater risk for standing assets in the UK and Ireland, and for development schemes. The sector’s relative resilience is likely to hasten long- term capital shift towards residential, and away from office and retail.
RETAIL: The challenges faced by the retail sector from e-commerce have intensified manifold in the pandemic, as social distancing, infection concerns, and store closures drive more spending online. The broader recession is prompting anxious consumers to be more cautious, while the collapse in tourism is hurting prime high street retailers. Bankruptcies and restrictions in the hospitality and leisure sectors have further eroded retail footfall. These conditions are expected to continue through 2021, with government support bringing little relief. Less discretionary formats (eg, supermarkets) should outperform. High streets and shopping centres driven by local traffic should also display less volatile performance.
Investment volume of €24bn in Q1– Q3 2020 was down by –35% on the pre- ceding three-year average. Yields have increased markedly across most retail formats and asset grades, and valuations are likely to decline further in 2021. Pricing adjustments, dislocation, and distress should attract opportunistic capital, while repositioning and conversion strategies (eg, residential or stor- age) will become more common.
OTHER: In addition to rented-residential, a number of European specialty sectors have become more institutional in recent years, eg, senior housing, student housing, and self-storage. Demand in these sectors is delinked, demography-driven, and needs-based, evidenced by their performance during the pandemic. Specialty offers growth potential and superior risk-return fundamentals to investors who are able to navigate factors such as operational intensity and complex regulation.
Specialty investors may expect greater predictability and less performance volatility. Care home deaths that made headline news in spring 2020 were highly localised, and the recovery in senior housing occupancy is already underway. The risk of foreign students forgoing study has mainly been confined to the UK, and many international students still intend to move abroad for the 2021/22 academic year.
Transaction activity and valuations should remain relatively unchanged compared to pre-COVID levels. The outperformance of specialty sectors is expected to spur greater investment in the long term. Market fragmentation, outdated stock, and low penetration rates form the basis for value-added strategies with a focus on redevelopment, aggregation and operator entity opportunities.
Heitman appreciates the importance of Global Investment Performance Standards (GIPS®). Performance returns for Heitman’s public real estate securities group have been prepared and presented in compliance with GIPS. Performance returns for Heitman’s North America private real estate equity group have also been prepared and presented in compliance with GIPS. Returns for Heitman’s public real estate securities group have been verified by the accounting firm Deloitte & Touche through 31 December 2019 and returns for Heitman’s North America private real estate equity group have been verified by the accounting firm Deloitte & Touche through 31 December 2019. To date, our European and Asian private equity composites consist of leveraged investment level time-weighted returns.
Certain Heitman subsidiaries are registered with the appropriate regulatory authorities in the US and abroad and, as such, are subject to applicable regulatory schemes. These operating subsidiaries have implemented their own tailored compliance policies to insure adherence to governing rules and regulations.