Corporate overview
Clarion Partners has been a leading real estate investment manager for more than 40 years, using the judgment of our experienced professionals as well as our proprietary research to design real estate investment solutions that create value and have the potential to deliver superior returns. We are distinguished by a performancedriven approach, long-term organisational stability, and a mandate of accountability to our clients.
With $74.2bn in total assets under management for approximately 500 institutional investors around the world, Clarion offers a broad range of equity and debt strategies across the risk/return spectrum – from core/core-plus to value-add/opportunistic. The firm, which is headquartered in New York, has over 300 employees and maintains a presence in strategic markets across the United States and Europe. Our strength lies in a well-established network of experienced professionals who bring a deep knowledge of local markets to every investment decision.
Investment principles & strategy
Experience has taught us that attractive investment opportunities can be identified at every phase of the real estate cycle. Clarion Partners invests in high-quality assets across key property types in major markets throughout the US and specifically targets logistics facilities across Europe. We carefully screen each acquisition using in-depth research and rigorous due diligence, focusing on properties that compete effectively over time and are located in markets with consistent capital market liquidity.
Strategic corporate development
Clarion Partners offers investment options in both commingled fund and separate account formats for institutional investors. Clients can select from a broad range of debt and equity investment options to build their real estate portfolios, including diversified core portfolios, sector-specific accounts, core, core-plus and value-add products as well as opportunistic vehicles. Going forward, we will continue to build our business by offering our clients real estate solutions that have been tailored to support their objectives and that capitalize on current market opportunities.
Sector forecasts
INDUSTRIAL: In Q2, US industrial property fundamentals remained healthy overall, with steady demand for Class A assets. The ongoing wave of new supply, however, has softened market conditions. The national industrial vacancy rate rose by 30bps to 5.7%, still well below the long-term average of 6.7%. In most markets, vacancy levels still remain below long-term averages. Smaller ‘light’ industrial properties (below 250,000 sqft) remain the tightest nationally. Overall, net absorption re-accelerated to 29.5m sqft, outpaced by completions of 101.2m sqft over the quarter. Completions have remained elevated and have outpaced absorption for eight straight quarters. Nevertheless, Class A absorption continued to outperform, reaching 46.4m sqft. Nationwide, overall average asking rent growth remained positive and reached a healthy 4.0% year-over-year, still well above the historic average. The e-commerce surge that followed the global COVID-19 pandemic spurred historic demand for industrial real estate. Over the past two years, the sector has returned to more typical, pre-2020 demand levels. Notwithstanding the near-term supply/ demand imbalance, the five-year rent growth outlook remains strong.
Clarion Partners remains optimistic about the sector’s ongoing growth due to the resilience of consumer spending, the ongoing penetration of e-commerce sales, network modernisation, and supply chain diversification (eg, onshoring/ nearshoring). Third-party logistics (3PL) and retail occupier demand are increasingly diversified by metro area and format. New starts moderated year-over-year by 25% in Q2 and we expect significantly lower new supply deliveries over the next 12-18 months. Forecasts indicate that new supply as a percentage of stock will reach a 10-year low in 2025, which is likely to strengthen rent growth. Through 2028, we also expect industrial net operating income (NOI) growth to outperform that of all other property types.
OFFICE: The US office sector recovery continues to face significant headwinds from relatively muted occupier demand. The national office vacancy rate rose by 10bps to 19.1%, a three-decade high; however, net absorption turned positive for the first time since 2021, after six straight negative quarters. Annual US asking rent growth climbed modestly to 0.5%, although leasing concessions remain elevated. Annual asking rent growth was positive in most markets. Florida markets, Las Vegas, Charlotte and Nashville led in rent growth. Rents have weakened substantially in tech hubs (eg, San Francisco, San Jose, Oakland and Austin). Leasing activity decelerated with fewer major markets showing leasing improvements year-over-year given the endurance of remote work and evolving office utilisation.
Going forward, the office sector is likely to remain challenged by elevated vacancy. With the construction pipeline at an 11-year low, the national vacancy rate should peak in 2024 and decrease gradually over the five-year forecast period. Certain segments are expected to outperform national averages. Sun Belt, low-tax states, tech/biotech clusters, top suburbs and new financial centres are expected to fare better than some gateway markets reporting sizeable availability and sublet inventories.
MULTIFAMILY/SINGLE-FAMILY RENTALS: In Q2, traditional multifamily property fundamentals strengthened. New demand strongly rebounded and offset elevated new supply levels. The national vacancy rate remained 5.5%; although this is a 50bps increase year-over-year. Many markets now report vacancy levels slightly above long-term averages due to new development. Southern California and the New York metro area continued to report the lowest vacancy rates. In Q2, net absorption surged to 126,633 units, the highest level since 2021 and well above the long-term trend, outpacing completions of 119,369 units. US annual asking rent growth decelerated to 0.3%; however, most markets well-outpaced the national average. Washington, DC, all large Ohio metros, Chicago, the New York metro area and Boston reported the strongest rent growth. At the same time, single-family rentals (SFRs), largely concentrated in the Sun Belt, saw rent growth of 3.2% year over- year, marking the highest gain in more than a year.
In the years ahead, Clarion Partners believes demand for rental housing is likely to remain robust due to low affordability. New multifamily development starts have fallen by 35.1% year-over-year due to higher financing costs. With the construction pull back nationwide, we expect rent growth for all forms of housing from 2025 onwards to strengthen. Resilient job growth, steady household formation, and generational demographics should provide tailwinds to support more institutional-quality multifamily, as well as SFR and build-torent (BTR) product, in and around a wider range of US metro areas.
RETAIL: US neighbourhood and community shopping centres remain a bright spot in the retail landscape. In Q2, the availability rate remained flat at 6.5%, a two-decade low. Availability rates were lowest in Miami, Raleigh, Nashville, Charleston and Seattle. Completions modestly outpaced net absorption for the first time since 2020. Nevertheless, US annual average asking rent growth rose by 2.5%, above the long-term average of 0.9%. Annual rent growth was highest in Miami, Columbus, Phoenix, San Francisco and Dallas. Investor interest remains highest in necessity (ie, groceryanchored) retail assets, as well as open-air, power centre and lifestyle formats, which often command a significant premium. Resilient economic and consumer conditions are broadly supporting retail activity, and store openings have exceeded closings so far in 2024.
After a decade of very muted new supply, landlords now have more pricing power. Currently, the five-year outlook for rent growth is much stronger relative to both the past five-years and long-term average. New neighbourhood and community centre completions are expected to remain below the long-term average from 2024 to 2028. Given recent population shifts, there is likely to be stronger sales growth potential in the urban fringe, suburbs, and secondary markets. Clarion Partners expects that Class A neighbourhood and community and lifestyle centres in top trade areas with high levels of spending power and supply constraints will outperform. More online fulfilment from stores and robust ongoing wage growth are also positives for the outlook in the coming years.
This material does not constitute investment advice, nor does it constitute an offer of any product or service from Clarion Partners LLC or Clarion Partners Europe and should not be viewed as a current or past recommendation to buy or sell any securities. Investment in real estate involves significant risk, including the risk of loss. Investors should consider their investment objectives and risk tolerance before investing.
Performance verification
Certain funds in the US private equity sector measure their performance against NCREIF Property Index, the most widely used benchmark for private equity real estate institutional investments, as well as the NCREIF ODCE Fund Index. Investments in other real estate sectors measure performance against benchmarks specific to their sector and strategy.
COMPLIANCE STATEMENT
Statements regarding forecasts and projections rely on a number of economic and financial variables and are inherently speculative. Forecasts relating to market conditions, returns and other performance indicators are not guaranteed and are subject to change without notice. There can be no assurance that market conditions will perform according to any forecast. Past performance is not a guarantee of future performance. Information contained in this report, including information supporting forecasts and projections, has been obtained or derived from independent third-party sources believed to be reliable but Clarion cannot guarantee the accuracy or completeness of such information. This is not an offer to sell, or solicitation of an offer to buy, securities. This information is intended for use by qualified recipients only.
