DTZ Investors manages €10bn ($12bn) of assets globally. In the UK we have an exceptional performance track record having won 15 prestigious IPD/MSCI performance awards since 2000. Our house performance has beaten the IPD/MSCI benchmark by 1.9%pa on average over the past 20 years to December 2017. In Continental Europe, we won the “Pierre d’Or” as Best Asset Manager of the year in 2004 and European Pensions award for Best Asset Manager in 2009.
Investment principles & strategy
We recognise the importance of income in long-term property investing. Income has generated c.70% of property total returns over the last 20 years. Our philosophy focuses on maximising the long-term income potential from property to deliver superior, risk-adjusted, property returns. We put the occupier at the heart of the investment management process, as the occupier creates the income return. We make allocations to markets where occupiers want to be, choosing buildings that are flexible to their needs and where we believe we can add value through managing the investments in partnership with them. This philosophy is integral to our entire investment process and drives our three-pillar approach:
1. Strategy: Our property market view is rationally based on the relative prospects for tenant demand, driven by business sector growth, location, and building preferences. We aim to capture superior rental growth relative to the wider market by identifying where tenant demand is expected to be strongest.
2. Stock selection: We acquire buildings that suit occupational requirements today, and have the scope to be adapted to suit future occupier needs.
3. Management: Our key purpose is to ensure that the businesses that occupy our buildings are satisfied customers. As a result, we have high tenant retention and low void rates within our managed portfolios. We have a business culture and a remuneration system that incentivises our managers to focus on the occupier.
INDUSTRIAL: Strong market fundamentals should enable the sector to maintain its position as one of the top performing sectors. Retailers have been a key source of industrial take-up, and should continue to support demand in 2018/19. Supply conditions are also favourable; vacancy rates are at a ten-year low, available space is being eroded by pre-let activity and the amount of new space currently under construction is low relative to its historical average. The combination of these factors should support rental growth in the near term. Performance prospects will differ by segment, with standard industrials (units below <100,000sqft) expected to outperform logistics due to its diversified occupier base, tighter existing supply, and additional pressures to land (particularly across London and the South East) from alternative uses such as residential.
OFFICE: To date, the office sector has proven resilient to the uncertainties of Brexit, occupier conditions have been bolstered by the activities of flexible office occupiers, causing take-up to sit ahead of its ten-year average for London and the Big 6 office markets. Supply is also relatively constrained; void rates across London and the Big 6 office markets are at levels that have historically corresponded with positive rental growth and the amount of new stock under construction is low relative to its long-term average. Although Brexit remains a key uncertainty to the sector’s outlook, it is possible that the transition process could be extended, giving occupiers time to adapt to future regulations. Plus, any fluctuations in the pound in the interim could be advantageous to the sector, improving the relative value of the sector on an international basis, encouraging global capital from investors that remain attracted to the sector’s longer-term fundamentals.
RETAIL: 2017 was a challenging year as retailers grappled with multiple pressures on their profit margins from: increased competition from online and discount retailers, higher business rates and labour costs, weak in-store sales and the cost drag from investing in online retail platforms. Conditions will continue to remain challenging in the short term as the recent flurry of CVAs and retailer administrations lead to a raft of store closures, increasing vacancy rates across the sector. As a result, rental growth is likely to be elusive, with secondary and tertiary locations and non-prime shopping centres at greater risk of rental and capital value falls. For the five years as a whole, we expect convenience retail in well-connected, busy thoroughfares and prime retail destinations in the top 20–30 retail locations to outperform all other retail segments.
RESIDENTIAL: The private rented sector (PRS) should continue to benefit from the excessive demand/supply imbalance in the residential sector. Well- connected PRS schemes in urban cities, that offer in-house and local amenities should maintain sustainable tenant demand over the medium term. PRS schemes in major regional city-centres are expected to offer more attractive performance prospects for investors given the 80–100bps yield advantage over Central London stock.
OTHER: The alternatives sector should be better placed to withstand some of the issues affecting other mainstream property sectors. Attributes such as higher-than-average yields, long lease lengths with inflation-linked income streams will remain highly desirable for investors in the current climate, supporting pricing.
Occupational prospects will vary across alternative segments. The leisure sector should benefit from resilient consumer spending, given that it provides a service that cannot be replicated online. Rents across most leisure formats (excluding restaurants) look affordable, providing scope for rents to grow from their current levels. Growth in the global economy and the weakness in the pound should benefit the hotel sector by maintaining overseas visitor numbers and incentivising UK consumers to take holidays at home. However, a growing development pipeline and the continued expansion of Airbnb operators could limit the rate of rental growth achieved by the sector. The outlook for the healthcare sector will be strongest for primary healthcare (doctor’s surgeries) compared with secondary healthcare (care homes), assisted by government funding, low void, low speculative development and affordable rents (relative to total business costs).
Strategic corporate development
Over our 50-year history the core of our business has been managing segregated accounts for large institutional clients in the UK. Today, our business is pan-European, but over the next five-year period a key focus for us will be to extend our footprint in Continental Europe. We also want to broaden our client base in terms of investor type and location. To this end, we will be adding to our roster of pooled fund products. Specific areas of focus for new product strategies are alternative sectors and continental European markets. We will also develop our asset management service line, working closely with overseas capital trying to help them access and manage European real estate.
DTZ Investors complies with applicable laws and regulations. The firm operates a Global Code of Ethics for its businesses that includes its investment and asset management operations. The Board establishes the compliance framework for its entities and is implemented by Senior Management. In addition, the Group Compliance Manager works to ensure compliance of the firm’s regulated activities and retains third-party auditors to monitor compliance.
News from DTZ Investors (Real Estate)
When considering real estate investments through a top-down analysis, purpose-built student accommodation (PBSA) emerges as a particularly attractive sector. Stable income, limited supply and increasing demand caused by demographic and societal factors are all distinct advantages.
The retail market has had its fair share of disrupters. The change in consumer trends, technology and the number of Company Voluntary Agreements and administrations, are continuing to have significant effects on the market.
News from IPE Real Assets
Scottish institutional investor heads south of border for mixed-use asset
Multi-let asset bought at 4% yield
Growth led last year by 10% rise in Asia Pacific property stock
Regional investment strengthened last year, DTZ study finds
Second-tier cities attract office tenants
White Papers / Research from DTZ Investors (Real Estate)
GDP growth moderated in the final quarter, after a strong summer; output grew by 0.3% for the three months to November, down 30bps on Q3. As expected, the service sector accounted for the largest share of growth adding 0.24 percentage points, the construction sector also contributed to GDP growth, while the production sector knocked 0.12 percentage points off growth owing to weak activity in the manufacturing sector, which suffered the longest period of month-on-month output falls since ...
The UK economy had a strong start to Q3 2018, output grew by 0.7% for the three months to August, an uplift of 30bps from Q2. All three sectors of the economy: services, construction and the production sector contributed positively to GDP growth, with the service sector (accounting for c.80% of the UK economy) providing the largest positive contribution to the headline figure.
According to the “Findings of Project Pool”, a report which has formed the basis of discussion between the Local Government Pension Schemes (LGPS) and the Government on the best way forward with the asset pooling initiative, the greatest savings from real estate pooling will arise from the migration from indirect to direct ownership.
Are the best years behind us? download
UK commercial property has had a good run; over the one, three and five years to December 2017 the asset class has delivered 8-11%p.a. total returns for investors, significantly outpacing UK bonds and closely matching the returns from UK equities.
Using the indirect market to access the more expensive areas of the direct UK property market download
This case study demonstrates how DTZ Investors was able to arbitrage between the direct and indirect UK property market in order to maximise returns for our clients.
Analysis from IPE Real Assets
The pooling of UK local authority pension schemes is taking shape and it has implications for real estate fund management. Richard Lowe reports
A long-awaited mandate from Japan’s GPIF and a major corporate deal between LaSalle and Aviva show a maturing industry. But does LGPS pooling in the UK pose a threat to multi-managers?
Student housing markets in continental Europe are catching up with the UK, just as Brexit uncertainty hovers over the 2019-20 academic year. Jennifer Bollen reports
Real estate in Taiwan’s capital looks destined for a downturn. Tsering Namgyal searches for bright spots in Taipei’s outlook
As debt funds have proliferated, margins have been squeezed. Russell Handy finds the best opportunities arising in fixed-rate refinancings