Residential and datacentres - European investment grade credit
Insights

Residential and datacentres – European investment grade credit

In a recent update we focused on challenges facing Europe’s real estate sector, but highlighted that by focusing on fundamentals within specific sub-sectors and related businesses we can identify select credit opportunities

In our analysis we typically break the real estate sector down into several segments – European residential, US residential, logistics, datacentres, offices, hotel/leisure, and retail. Of these groupings, for example, we’re currently wary of a retail sector impacted by cost-of-living and consumer confidence issues. We are also keen to avoid offices – a sector exposed to macro headwinds and which is still getting to grips with the hybrid working model as well as high and rising vacancy rates.

Conversely, see real potential in Europe’s residential and datacentre subsectors. In these market segments we can identify solid fundamentals and credit spreads pricing in an overtly negative outlook. So, what makes each of them attractive?

European residential

Strong incumbent firms in Europe’s residential sector look well placed. An imbalance between supply and demand provides support with comprehensive social security systems in countries like Germany and Sweden meaning there are very few issues with rent collection or deferral. Even in extreme times such as we saw during the pandemic the sector was helped by supportive fiscal initiatives. Earnings visibility is provided by long and well-regulated index-referenced leases and threats from new supply or entrants are limited.

We’re seeing governments becoming more accommodative of the sector given the challenges it faces in meeting energy efficiency targets and provision of new supply. In terms of risks, we’ve previously discussed how some challenged issuers have turned to asset disposals to raise capital and the potential issues around having to sell prime assets and future earnings potential. Of course this is a potential issue, but larger names can protect themselves through ‘self-help’ measures such as reducing dividend payments like Vonovia did in 2022.

Datacentres

Media streaming, gaming, mobile traffic, internet of things, cloud computing and artificial intelligence are just some of the drivers of booming data storage demand. At the same time supply is struggling to keep pace with headwinds from land availability in key geographies, power supply constraints and skilled labour shortages. All in all, it’s a supportive backdrop for larger companies – like DLR and Equinix – with established capabilities and infrastructure. Companies increasingly look towards bigger datacentre providers as they’re keen to benefit from infrastructure already connected to customers.

And it’s an environment that’s allowed datacentre operators to regain pricing power. There are risks to be cognisant of, however, not least environmental considerations around levels of energy and water use. We see real advantage for businesses prioritising reduction of water use and utilisation of renewable energy sources and both DLR and Equinix have made firm commitments around their energy transition from here.

Of course, opportunities aren’t limited to these two subsectors alone. We also like a logistics sector boasting rental growth underpinned by structural drivers such as supply chain onshoring, inventory build-up (as companies move to improve supply chain resilience) and scarcity of urban last mile land.

9 Juni 2023
Share article
Share on linkedin
Share on email
Hauptthemen
Verwandte Themen
Listen on Stitcher badge
Share article
Share on linkedin
Share on email
Hauptthemen
Verwandte Themen

PDF

Residential and datacentres – European investment grade credit

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Verwandte Beiträge

9 Juli 2024

In Credit Weekly Snapshot – July 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
26 Juni 2024

In Credit Weekly Snapshot – June 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
14 Mai 2024

In Credit Weekly Snapshot – May 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
15 Juli 2024

Steven Bell

Chief Economist, EMEA

Where to next for UK Interest rates?

Market odds for the Bank of England to cut rates in August are better than 50:50. We are less optimistic.
Watch time - 4 min
12 Juli 2024

Japan Equities: Was spricht für japanische Aktien?

Kirschblüte, solide Autos und eine jahrtausendealte Kultur: Japan ist die viertgrößte Volkswirtschaft der Welt. Eine Reihe von Reformen bringen die Wirtschaft weiter voran.
Lesezeit - 10 mins
9 Juli 2024

In Credit Weekly Snapshot – July 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
true
true

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Das könnte Ihnen auch gefallen

Investmentansatz

Teamwork bildet eine wichtige Grundlage unseres Anlageprozesses, der so strukturiert ist, dass er die Ausarbeitung, Bewertung und Umsetzung fundierter und vielversprechender Anlageideen für unsere Portfolios erleichtert.

Fonds

Columbia Threadneedle Investments bietet eine umfangreiche Palette von Investmentfonds an, die eine Vielzahl von Anlagezielen abdeckt.

Anlagekapazitäten

Wir bieten eine breite Palette aktiv verwalteter Anlagestrategien und -lösungen für globale, regionale und inländische Märkte und Anlageklassen.

Bitte bestätigen Sie einige Angaben zu Ihrer Person, um Ihr Präferenzzentrum zu besuchen

*Pflichtfelder

Etwas ist schief gelaufen. Bitte versuche es erneut

Vielen Dank. Sie können jetzt Ihr Präferenzzentrum besuchen, um auszuwählen, welche Einblicke Sie per E-Mail erhalten möchten.

Um zu sehen und zu aktualisieren, welche Erkenntnisse Sie von uns per E-Mail erhalten, besuchen Sie bitte Ihr Preference Center.