abrdn (Real Estate)

abrdn has a significant footprint across global real estate markets, and is one of the largest European domiciled managers of real estate. Across Europe, Asia and the US, our team of over 200 real estate professionals find opportunities, conduct transactions and develop our real estate assets to unlock value. We look to maximise the asset class’s potential for our clients by investing directly in real estate and indirectly in the shares and debt of a broad range of real estate operators.

We offer expertise across all principal real estate sectors – enabling our clients to target opportunities in their home markets and globally. Our market presence and scale assure deep insight across sectors and unparalleled access to assets. Our deep, integrated focus on sustainability looks to reduce investment risk and help our real estate portfolios contribute to positive social and environmental outcomes. 

To capture the market’s full potential, we provide solutions on both a direct and indirect basis, and across the risk curve from core through to value-add and opportunistic investment opportunities. We have a long track record of developing innovative strategies and products to harness new opportunities and deliver new, more efficient ways to meet client goals.

Our global scale and local knowledge allow us to identify and access those opportunities across real estate that we believe can deliver strong risk-adjusted returns for our clients, while the market insight from our research and strategy teams helps enable our clients to benefit from the structural changes shaping future real estate opportunity – such as urbanisation, e-commerce, longer life expectancy, and changing working patterns

Sector forecasts

Industrial

Supply chains are moving through a period of exceptional structural change driven by three key factors. Firstly, ESG considerations are broadly driving the need for tenants and investors to upgrade logistics stock to deliver more efficient operational performance with lower emissions, higher employee satisfaction and the ability to implement automation, robotics and data analytics. Secondly, the Covid-19 Pandemic accelerated many aspects of de-globalization, stress-tested existing distribution networks, resulting in a push to diversify and often shorten supply chains. Lastly, e-commerce sales may have dropped back from the dizzy heights of the pandemic, but the long-term trajectory is the continued increase in online sales. This is driving demand for modern warehousing closer to consumers. When markets are undergoing a transformation, such as in logistics, it is extremely important to remain focused on asset quality and the future relevance of the building.

Office

Offices have been a staple of investors portfolios for decades, but the performance dynamics are changing. Poor quality stock is confronted with accelerated obsolescence (or substantial capital expenditure) due to increasing ESG requirements from tenants and investors. New decarbonization and EPC targets stipulated by the EU Energy Performance of Building Directive is a good example of the pressures mounting on secondary offices. With tenants and investors increasingly focused on quality, we expect a two-speed office market to persist with prime, efficient offices significantly outperforming the rest. We believe portfolio office weights should be lower, with a strong focus on the quality and the strategy at the asset level. We have developed a quality rating system called FACTS which scores offices on their current and future potential, offering greater clarity on the risk and performance potential of assets.

Residential

The living sectors, which we define as private rented apartments (PRS/BtR), purpose-built student accommodation (PBSA), micro-living, senior living and serviced apartments, carry very appealing dynamics for investors. There are roughly 12 million more renters in Europe in 2022 when compared to 2007, while home ownership is shrinking. The drivers are varied, but there are three key reasons to invest in the sector. Firstly, living sectors offer a range of different demand drivers to typical commercial sectors, including demographic shifts and behavioral trends and are less correlated with economic growth. Secondly, the supply outlook is significantly constrained in the context of the growing housing shortage. Lastly, there is a range of income characteristics across the residential sector from more operational assets where investors have more exposure to the underlying asset performance, while there are longer leases also available from operators in the senior living and PBSA sectors that provide more predictable long term cash flows.

Retail

The retail real estate sector is going through a significant transition to meet modern consumer needs. Technological advance and the rise of e-commerce has created a significant volume of obsolete or challenged retail assets. Shopping centers, department stores and some high street retail has fallen victim to this over the last decade. The UK and US are the most advanced in this transition while much of Europe and Asia is following the trend at a steady pace. Online retail sales growth is set to be around 5% to 10% per annum. Some retail formats have been far more resilient, such as supermarkets and other convenience retail where the necessity to shop in physical stores has protected store relevance and therefore rental levels. Some retail formats have proven to have a future through the pandemic too – such as dominant or grocery anchored retail parks. In modern schemes where the tenant mix is strong, rents are low or have rebased to affordable levels, there are interesting opportunities for investors.

Other

Alternative or operational real estate assets, including but not exclusively healthcare facilities, data centres, self-storage and some types of leisure, are increasingly considered a mainstream component of the investible universe. They bring attractive demand-side diversification benefits to investor portfolios as they are typically less linked to economic growth and more to thematic, demographic or technological trends. For “building is the business” investors, the risk profile is different to traditional commercial real estate assets. There must be a greater focus on the strength of the operator, the regulatory environment (for healthcare in particular) and other very specific industry-level considerations which are critical to understand, more so than in offices or industrial for example.

Investment principles & strategy

Through collaborative research, we build high-conviction portfolios that seek to unlock growth and attractive risk-adjusted returns for our clients.

Our Global houseview informs decision-making at a market and asset level, using team’s collective experience to interrogate ideas, build conviction and forecast relative performance of sectors and markets. Our team will also focus on current global themes such as demographics, urbanisation, technology and climate change.

Using this information, we take a tailored approach to each of our mandates, based on a deep understanding of our underlying client’s objectives. We create detailed, regularly reviewed strategic plans for funds, and comprehensive action plans for the properties we own.

We integrate environmental, social and governance (ESG) factors throughout our investment process. As well as aiming to maximise the performance of our real estate assets and reduce risk, we use our focus on ESG to drive positive social and environmental benefits from the assets we hold. We use our proprietary in house expertise to measure these benefits and also to map them to our clients’ ESG targets

_{As at 31/12/2022}