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.
Strategic corporate development
The firm’s five-year business plan is to continue to selectively grow assets under management across our three business units. We do not have any pre-specified limits on the number of accounts or assets under management, but instead focus on measured growth and a philosophy of only taking on new business when we are confident we can add value to our clients without jeopardising the quality of work for existing relationships. 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 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 through delivery of strong performance and excellent client service.
INDUSTRIAL: Investor appetite for European industrial assets remains high, with €12bn traded in H1 2019. This figure has nonetheless been unable to match the preceding five-year average of €13bn, mainly due to increasingly scarce product and competitive pricing, but is robust from a long-term perspective. International capital, attracted by strong market fundamentals and diversification opportunities, has continued to pile into the sector. Investors from North America and the UK account for the majority of cross-border transactions.
Yield compression, although not quite as rapid as in previous years, has nonetheless continued across most of Europe. Prime yields have compressed in the Eurozone’s five largest economies and in parts of the Nordic and Central European regions. Structural changes positively affecting the sector, such as e-commerce, and government bond yields dipping into record-low and even negative territory are contributing factors behind this. Given modest rental growth, capital values look set to appreciate further for some time.
Although the global manufacturing slowdown remains a key risk to the overall economic outlook, this development is yet to have any material impact on European logistics markets. The increasing share of demand coming from online retail players, whose activity is largely dependent on structural trends, is a key reason for this insulation. Other important dynamics in the sector include construction costs and labour availability – both of which have become more challenging given tight labour markets across most of Northern Europe and in CEE.
OFFICE: Although service sector activity and job creation have slowed since last year, they remain positive in almost all of Europe. The service sector is for now mostly resilient, although persistent difficulties in the industrial sector are a key risk to the outlook. In Europe’s key cities, the main obstacle to growth is the scarcity of labour. A large number of cities now have unemployment below the 5% threshold.
With regard to vacancy, CBRE data indicates that vacancy rates across almost all of Europe’s top 30 markets fell during the first half of the year. Overall, new supply remains relatively constrained and, given strong demand for quality space, pre-letting has been increasing. In general, occupier market conditions remain more favourable towards landlords, with only a handful of cities (mostly in CEE) still tilting towards tenants.
Given the gradual increase in new supply and slowdown in economic activity, it is expected that an increasing number of occupier markets will start to reach their peak in this cycle over the next 12 months.
RESIDENTIAL: In Europe, there is a broad opportunity to invest in the Living sectors, encompassing rented residential, student accommodation, and senior housing property types. It also includes micro-flats and co-living. Demand for residential is underpinned by strong demographic growth in the largest European metros, in particular, household growth that has consistently outperformed even as country-level populations have stabilised.
Supply has been increasing in most major cities but, largely due to regulation, scarcity of land, and increasing labour costs, is typically still short of new demand. Vacancy rates are set to remain very low and rents to steadily rise, although at a slower pace given new supply and affordability constraints.
Over the four quarters ending Q2 2019, the Living sectors made up 22% of all investment activity in Europe. However, most European property investors are grossly underweight to Living, with allocations mostly in the single digits.
RETAIL: The macroeconomic environment remains generally supportive of European retail markets, although risks have been increasing. Consumer confidence has been knocked by factors such as the US-China trade war and Brexit, with increasing unease about employment prospects in countries such as Germany and Ireland. Positively, sentiment around personal finances – which correlates most with actual spending – has been more resilient. This is mainly due to accelerating real wage growth and low unemployment across most of Europe.
The sectoral outlook is materially more challenging for traditional retail operators and owners of retail property. The relentless pressure from online shopping, which is growing at double-digit rates, means that only the most innovative or creative retailers will continue to thrive. Many traditional retailers have had to downsize their store portfolios, among them some of the leading chain department stores in the UK. Retailers who have done well in this challenging environment are usually value operators; there is also demand for experiential retail, health & beauty, furniture & homeware, and leisure operators. Largely owing to difficulties in the clothing segment, falling prime rents are now common among all but the most prestigious high streets and shopping centres in Europe.
In general, demand for prime space across Europe’s key retail cities continues to be selective. Capital market activitycontinues to trend down. In Q2 2019, rolling annual volumes reached €36.9bn, or almost half their peak. This has been driven primarily by a decline in shopping centre sales, with other segments more resilient but still weak.
Investment principles & strategy
Heitman is a research-driven investment firm. Our strategies reflect constant analysis of economic and demographic trends, property market shifts, and capi- tal 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 trans- lates into an information exchange that helps us stay abreast of changing condi- tions 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.
Heitman appreciates the importance of Global Investment 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 2017 and returns for Heitman’s North America private real estate equity group have been verified by the accounting firm Deloitte & Touche through 31 December 2018. 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.