Corporate overview

Clarion Partners has been a leading US real estate investment manager for more than 37 years. Our mission is to use the judgment of our experienced professionals as well as our proprietary research to design real estate investment solutions for our clients with the potential to deliver superior returns and create value.

With $51.7bn in total assets under management for more than 350 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 more than 285 employees and a presence in major markets across the United States and Europe.

Clarion Partners is distinguished by a performance-driven approach, organisational stability and a mandate of accountability to our clients.

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 properties, typically from the five key property types, in major markets throughout the US and 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 opportunity 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 capitalise on current market opportunities.

Sector forecasts 

INDUSTRIAL: The underlying conditions of the US industrial sector remain very healthy amidst a strong supply pipeline. In most US markets, availability levels are historically low, sustaining rent growth above the long-term average pace. Warehouse rent growth has continued to outperform that of other sectors. Industrial production, new orders, and purchasing metrics have slightly declined; however, new import tariffs have had little negative effect on leasing demand so far. Investors are increasingly focused on industrial sites in qualified opportunity zones (QOZs). Occupier demand is expected to somewhat shift by country of origin; however, a larger slowdown in total volume of goods is not anticipated. 

Most markets are still not viewed at risk of overbuilding. Availability is still generally low in top distribution locations near air-, port-, and rail-related transportation from third party logistics (3PL), retailers, and food & beverage companies. Furthermore, Class A inventory is still only about 15% of stock. New development is more diversified by market outside of the primary industrial hubs. Much of the existing stock is now quite dated − almost 50% was built prior to 1980. Both warehouse redevelopment and adaptive reuse projects of Class B/C malls and suburban office property are now common. Multi- storey facilities are on the rise around population centres. 

OFFICE: US office market fundamentals generally maintained positive momentum with varied growth by region and asset. Each market’s relative draw depends on its unique demand drivers (e.g., urban dynamism, talent pool, and tax environment). Overall, rents remain on an upward trajectory, but are rising at a slower pace. The draw to high-quality, more efficient, and less traditional formats has occurred in premier suburban and top downtown hubs in business-friendly states, established financial centres, and innovation clusters. More specialised high-growth sectors, such as life sciences and new media, are also driving much of new leasing activity. More corporate occupiers continued to reassess workplace strategy to reduce real estate expenses and accommodate the rising cost of living.

RESIDENTIAL: US multifamily sector property fundamentals have remained robust amidst the weakness in for-sale housing in most top housing markets. Lagging home sales and new household formation have boosted demand for rental apartments. Through 1H 2019, demand accelerated yearover- year, which was even stronger than anticipated. Rents are still near record highs in top cities and premier suburbs. New apartment move-ins increased 11% year-over-year. Leasing trends are generally strongest in a few large US employment hubs. Class A and B apartments still report strong average rent growth above inflation across most primary and secondary markets.

Many cost-burdened renters continued to pay more than nearly half of their income on housing, and millions of young adults are still living with family. Institutional investors continued to allocate capital to Class A apartments and well-located Class B assets within strong live-work-play environments. Investor appetite for multifamily beat out all other commercial property types in 1H 2019.

RETAIL: US neighbourhood and community centre fundamentals are increasingly solid amidst ongoing store closures and re-tenanting. Strongercredit chains have improved productivity at most high-performing Class A shopping centres. On the other hand, malls and power centres have not shown ongoing improvement in occupancy gains.

Overall, the retail sector has reported a minor decline in asset values. In 2019, store closings accelerated relative to 2018, and bankruptcies continued amongst lower-credit and debt-loaded retailers. The sector’s re- pricing has been most significant at malls and power centres. Outperforming retail formats are largely connected to population density in commercial districts and residential neighbourhoods. Premier mixed-use, urban, lifestyle, and Class A mall assets report lower vacancy rates. Personal services, medical outpatient care, discount, off-price apparel, food & beverage, entertainment, postal services for e-commerce returns, and recreational offerings are top expansion categories. New projects consist mainly of redevelopments in top urban infill locations and lifestyle centres.

Recent completions are modelled after new, more efficient walkable subtypes, such as unanchored centres and villages.

HOTELS: The US hotel industry sold more rooms than any other Q2 in his- tory, however, supply grew at a slightly higher rate. All classes except Midscale recorded positive RevPAR gains, with the highest growth in Independent and Resorts chain scales. Given the positive GDP growth outlook, US hotels remain in a solid position for the next year, however, there may be a slowdown in cor- porate spending. In 2018, US hotel industrywide house profit reached a record- breaking level, even as labour costs grew at a higher rate than revenues. Luxury hotels achieved the greatest profit increase. Nationwide, hotel supply growth (+2.0%) outpaced demand growth (+1.9%). Tailwinds include rising corporate profits, ageing demographics, and more international travel.

Occupancy levels have generally been highest in thriving central business districts. Headwinds include a relatively strong US dollar, protectionist trade policy, and alternative home-sharing accommodations. Unique meeting places, corporate and entertainment space, health & wellness, and food & beverage are emerging themes in hospitality. Owners focus on new and trendy brand and redesign concepts offering more lifestyle amenities has boosted overall profits. Airbnb, now one of the largest home sharing services, still only accounts for a small share of total institutional-quality full-service hotel supply; however, recent reports indicate the rising use of Airbnb for longer stays and in both less- served areas and high-cost cities.

Many investors have a positive long-term outlook for hotels given increased spending on leisure & hospitality and a healthy economy overall.

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 Pension assets 65% 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.