Clarion Partners has been a leading US real estate investment manager for more than 36 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 $47.8bn 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 head-quartered in New York, has more than 280 employees and a presence in major markets across the United States as well as in London.
Clarion Partners is distinguished by a performance-driven approach, organisational stability and a mandate of accountability to our clients.
We are scaled in each sector and benefit from our well-established network of experienced professionals who bring a deep knowledge of local markets to every investment decision.
Going into 2019, the U.S. commercial real estate sector remains attractive to global investors seeking income and low volatility late in this cycle. Healthy supply/demand fundamentals are likely to continue to benefit from a relatively solid U.S. macroeconomic backdrop, mainly in five ways:
- Steady GDP and job growth: approximately 2.4 million new jobs were added to the economy over the past year amid accelerating wage growth. Property owners should have a greater ability to increase rents
- Strong demographics: over 1.4 million new households were formed over the past 12 months, generating substantial new demand for housing and commercial space
- Higher replacement costs: rising construction materials and labor prices have significantly escalated replacement costs, providing room for additional asset appreciation
- Elevated cross-border capital inflow: high foreign inbound investments have improved capital availability and overall liquidity, thereby creating greater competition for high-quality properties
- A rising interest rate environment: the potential rise in interest rates is generally viewed as a negative for cash and fixed-income bonds, which may prompt investors to rotate more capital into inflation-hedging asset classes including CRE
Clarion Partners expects sustained investor interest in warehouses/e-commerce supply chains, rental housing, creative offices, strategically located retail assets, and health care properties within top employment and retirement hubs. Investment themes in which we see potential include socioeconomic diversity, urbanization, demographic demands, and high-growth industry clusters (e.g. high-tech, new media, and life sciences). Institutional managers generally favor institutional-quality properties and build-to-core strategies. Based on our 2019-2021 outlook, Clarion’s near-term strategy favors industrial, urban multifamily, and CBD (Central Business District) office, with a focus on selective value-add opportunities, especially in top secondary markets and premier suburban submarkets outside the major markets.
The global quest for steady and high-yielding financial instruments has driven a long-term shift from conventional investment types to alternative asset classes, of which CRE is the largest category. U.S. institutional-quality real estate cap rates remain attractive on a relative basis to both domestic and international real estate investors. Overall, global investors have been satisfied with CRE performance amid favorable property-level fundamentals and historically low levels of new supply (except for a few markets/submarkets). Both institutional and retail investors have continued to allocate more capital into CRE, with target allocations across portfolios rising steadily. The newly released 2018 Institutional Real Estate Allocations Monitor Survey indicates that the average target portfolio allocation to real estate among global institutional investors continues to rise, up from 10.4% in 2018 to 10.6% in 2019.
Overall, Clarion Partners holds a cautiously optimistic U.S. commercial real estate market outlook for 2019. Pro-growth policies are likely to extend the current business cycle, which is on track to become the longest on record. U.S. property fundamentals are expected to remain healthy as well. CRE same-store net operating income (SS NOI) growth remains strong at 3% year-over-year, well above the long-term average. Attractive total returns will be driven, in our opinion, by stable cap rates, solid NOI growth, and accretive financing. As occupancy rates approach 90-95% in most U.S. markets, we believe there are plenty of opportunities to create value through disciplined, active investment strategies.
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.
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Analysis from IPE Real Assets
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