Nick Evans

Global real estate heavyweight, TIAA Henderson Real Estate (TH Real Estate), is investing heavily into retail centres around the world, predicting attractive investment returns for institutional investors seeking to deliver strong and defensive income streams to members.

TH Real Estate is the world’s largest investor in retail property* with AUD$33.7bn** in retail assets under management. This week, the firm is hosting executives from its global retail business, to discuss new global investment opportunities with some of Australia’s most sophisticated institutional investors.

TH Real Estate Executive Director and Head of Australia, Nick Evans, says the retail sector continued to perform strongly, throughout 2014, and is well-placed to continue its strong performance.

While the broader retail sector has faced significant disrupters – namely the rapid growth of e-commerce and changing consumer behaviour – as well as economic downturns, Mr Evans said the changes were also creating significant opportunities within the sector.

Well-located retail centres, that dominate their catchment area and offer experience or convenience, are well-placed to secure greater returns as the sector matures, he said.

The future of retail centres

Key trends in global retail identified by TH Real Estate include:

• Experience or convenience: Retail properties of the future will need to accommodate either of these two key buyer demands
• Multi-channel retail formats: Retailers, investors and developers will look to meet buyer demand via a blend of online and physical offerings
• Increased connectivity: Shopping centres will recognise and connect with shoppers using mobile technology
• Quality customer service: Service will be increasingly important as shoppers become ever more selective
• Increased globalisation: International brands continue their infiltration of global markets

Nick Evans, TH Real Estate Executive Director and Head of Australia said:

“Technology and consumer preferences are having a dramatic impact on retail formats across the globe. We are advising clients that well-located and dominant retail schemes, with the flexibility to adapt and meet customer service demands, will be the future winners.

“E-commerce has seen a significant shift in buyer trends and preferences, with retailers in merchandise categories like books, music and electronics, taking a considerable hit. But buyers are still looking for that tangible experience when it comes to purchasing items such as clothing and home furnishings – they still like to touch and feel, and so while retailers are growing their online sales, a network of physical stores is still essential.

“The natural attrition of centres that lack a distinct location or critical mass, is actually improving outcomes and future prospects for dominant centres that are well-located. Expanding retailers looking to secure space in gateway locations and high profile centres will pay keenly to do so.”

Investors look to retail for stable, long-term income

Mr Evans said institutional investors were showing particular interest in investment solutions that cater to an ageing member base, and that retail property represented an attractive option for a growing number of investors. In particular, the property class is favoured for its low volatility, long lease terms and diversity of tenant base.

Given the substantial price tag attached to large format retail centres however, pooled investment vehicles, such as TH Real Estate’s UK Shopping Centre Fund, are proving an increasingly popular route to retail property investment, he said.

Nick Evans, TH Real Estate Executive Director and Head of Australia said: “Investment in good quality retail assets can provide investors with some of the best defensive, risk-adjusted returns around, acting as a good diversifier to more cyclical office markets.

“Analysis of net operating income (NOI) in the United States, for example, shows the US regional mall market has been more stable compared to other property sectors over both an extended time period of close to 20 years, including periods of economic downturn.

“Dominant retail centres attract significant price tags so we are concentrating on developing strategies to help institutional investors access in this market at a reduced outlay. Our pooled investment vehicles offer investors the opportunity to invest in high quality dominant malls alongside the world’s largest and most experienced investors and other like-minded institutional investors.”

——————-

*IP Real Estate Top 100 Investment Management Survey, November 2014

 **Figures as at 30 September 2014.

The post Global retail property a solid bet for 2015, says world’s largest investor appeared first on AdviserVoice.

Actively managing real estate assets can bring value.

Independent fund manager Resource Real Estate Global Property Securities (Australia) (RRE GPS) says Australian institutional investors need to take a ‘next-generation’ approach to real estate investing, and recognise property as dynamic businesses that actively drive value-creation, rather than passive building assets.

In Australia this week speaking with a range of institutional investors, New York-based RRE GPS Portfolio Manager Scott Crowe said property investing had changed enormously in recent years.

“Times have changed and as real estate companies have become more mature and dynamic. As such, the optimal approach to investment also needs to evolve. Rather than simply a static portfolio, real estate securities are actively managed and the focus of investors needs to be on the ability of a company to generate long term intrinsic value growth,” said Mr Crowe.

With the first phase of declining interest rates and stabilising fundamentals behind us, RRE GPS believes there has been a clear shift into the growth phase of the real estate cycle – as evident by improving global demand and limited new supply – delivering an opportunity  for Australian investors to generate returns and earnings growth from global property securities.

A ‘next generation’ approach – taking in a combination of factors including the business model, quality of management and the asset itself – offers a unique opportunity for investors in this growth phase.

“We believe intrinsic quality will generate returns in this new world of real-estate investing. It’s increasingly important to look at factors like quality of the balance sheet and quality of  management who can turn a B-grade property into an A-grade property, or enter a new asset class such as retirement homes,” added Mr Crowe.

Growth in global real estate multiplies while Australian sector still maturing

RRE GPS says understanding of global property opportunities among local investors has come a long way since the financial crisis; however Australian institutions were surprised to learn the global rate of growth of the sector in recent years.

In 2003, it is estimated the global securities universe held an approximate market capitalisation of US$600 billion, while today it holds around US$1 trillion (including emerging markets). RRE GPS predicts the size of the sector could grow by a further 50 per cent in the next five years.

RRE GPS Head of Asia Pacific and Portfolio Manager John Snowden believes Australian investors should ensure a more diversified portfolio through global property securities, and away from the Australian REIT sector due to its high concentration levels in a few large companies.

“Five companies account for over 80 per cent of the A-REIT market capitalisation, and Australia is a very small player globally, less than five per cent of the global real estate share market. We still have some way to go and the Australian sector is still maturing,” Mr Snowden said.

“RRE GPS uses a proven investment process and strong track record to search the broader universe of 300 stocks and filter through to an investment portfolio of 50 to 70 securities,” Mr Snowden concluded.

Resource Real Estate, a US based investment management company recently launched RRE GPS in early October via a joint venture with Channel Capital. Led by industry veterans Scott Crowe (New York) and John Snowden (Sydney), the joint venture offers local institutional investors access to quality global property security investments.

The post Times are a’changing: RRE GPS driving ‘next-generation’ approach to real estate investing appeared first on AdviserVoice.