Canada Life Investments is a UK-based asset manager responsible for managing more than £36bn of equities, fixed income and property.1 We have been active in the UK for more than 100 years, having first established our life insurance business here in 1903. Our focus is on the long term and we believe that active management is the best way to add value for our clients and generate superior returns.
Our parent company, Great-West Lifeco, is one of Canada’s largest financial companies with over £750bn consolidated assets under administration.2 By being part of a much larger group, we are able to draw on a pool of expertise and resources that enable us to better serve our clients and help them to meet their objectives.
Canada Life Investments currently manage £2.6bn3 of property assets, as well as providing more than £2bn of real estate finance.1 We have been active and committed investors in the UK commercial property market for over 50 years. We have significant expertise of investing in and managing commercial property within the UK, Republic of Ireland and Western Europe. Our property investment professionals have a long tenure at Canada Life Investments, providing our investors with depth of experience in managing and investing in commercial property throughout various market cycles.
Canada Life Investments have also been active in the real estate lending market for more than 25 years and have a dedicated team of investment professionals who focus on commercial real estate finance. We are specialists for corporate borrowers seeking to purchase or refinance commercial property throughout the UK. In addition to providing finance for the acquisition of good quality assets in the UK commercial property sector, we also provide finance to corporate borrowers such as regulated social landlords and businesses looking to refinance their corporate real estate holdings.
1 As at 31 September 2018; 2 As at 31 December 2017; 3 As at 30 June 2018
Industrial: Investor and occupier demand has continued to be strong for this sector in the UK, resulting in exceptionally strong performance. Demand in the occupier markets has been driven by ongoing structural changes related to technological improvements, growth in online shopping and the increase in demand for logistics, distribution warehousing and last-mile delivery to fulfill customer orders. Demand has continued to outstrip supply in most major markets with the exception of the Big Sheds market, where there is a potential oversupply risk due to a large increase in the development pipeline.
Ongoing strong investor demand has pushed down yields on prime logistics assets to levels lower than prime office assets, a situation not seen before in the market. Consequently, it is difficult for investors to find value on prime assets in the best locations. Better value can be found on standard industrial assets in regions outside of London and the South East.
We expect this sector to continue to deliver strong performance to investors in 2019/20.
Office: The office sector has continued to see relatively robust occupier demand, despite ongoing uncertainty as a result of Brexit. The Central London market saw total take-up reach 9.3 million sq,ft in 2018 as a whole, 7% above 2017’s level. Co-working/flexible operators are continuing to drive occupier demand, accounting for approx.20% of all take-up in Central London, but underlying occupier demand is more muted, resulting in subdued rates of rental value growth. In contrast, rental value growth has been stronger in the rest of the South East and the regional markets due to solid take-up and limited supply.
Investment activity held up relatively well in 2018 although it weakened in Q4, resulting in annual transaction volumes being 5% lower than in 2017 as Brexit-related uncertainty and slower global economic activity resulted in more cautious investor sentiment towards the market. Overseas investors continued to dominate investment activity, accounting for 43% of all purchases in 2018 as a whole, although this fell from 49% the previous year, while UK institutions increased their share modestly to 17%. London remains a key investment target, although investors are also increasing their exposure to major regional cities for diversification benefits.
We are forecasting returns in low single digits for the overall market over the next few years. Rental growth will be strongest in the major regional office markets outside of London.
Retail: 2018 was a particularly challenging period for retailers due to a combination of ongoing structural changes associated with competition from online retailing and changing consumer buying trends towards mobile and online shopping, and a rise in occupancy and business operating costs. Consumers have been focusing their shopping behaviour in physical stores on either high-end, experience and leisure goods, or local convenience and discounted goods, which had resulted in an ongoing polarisation in the market, but which has now also started to affect the prime end of the market in the most affluent locations of London and the South East. Several mass-market department stores, fashion goods and homewares retailers have entered CVA arrangements with their landlords or ultimately gone into administration, resulting in store closures and retailer portfolio consolidations.
In this difficult trading environment we are forecasting retail rents to fall modestly for most sub-types and locations over the next few years as the market adjusts to ongoing structural changes where the boundaries between online and offline retailing are being increasingly blurred and consumer buying habits are changing. We believe the strongest investment prospects lie in assets located in strong destinations, focused on an enhanced customer experience and a strong integrated multi-channel offer, as well as those focused on defensive discount, supermarket and convenience goods in strong local catchment areas.
Investment Principles & Strategy
We aim to deliver attractive long-term returns through a combination of income and capital growth, investing directly in commercial property. Our investment principle is based upon creating a well-diversified portfolio across different property sectors, geographic regions, lease maturities and investment sizes. We aim to maximise net income from a portfolio investing in high quality assets in strong locations with an emphasis on letting vacant space, lease renewals and re-gears, rent reviews, refurbishments and some development. We believe that risk controls and effective reporting are central to a well informed and managed investment style. Portfolio ‘risk’ is adjusted by reference to the economic cycle. We believe that detailed research and analysis of markets and individual stocks is vital in delivering optimum property returns. Evaluation of environmental factors is important as such risks will increasingly impact on rental growth expectations and levels of depreciation.
Strategic corporate development
In October 2017 we launched the LF Canlife UK Property Authorised Contractual Scheme (ACS). The new fund has an a NAV of £402m1 and is designed to provide institutional investors with attractive long-term income returns and capital growth primarily through direct investment in UK commercial property assets. The fund is diversified across property sectors, geographic regions and lease maturities. To ensure an optimum risk/return balance, we invest the core of the fund in high-quality, income-generating assets and add tactical opportunities in more speculative or opportunistic investments and developments.
The information contained in this document is provided for use by investment professionals and is not for onward distribution to, or to be relied upon by, retail investors. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice. This document is issued for information only by Canada Life Investments. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available at www.canadalifeinvestments.com. Canada Life Investments is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no. 03846821), Canada Life Limited (no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
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