Real Estate: Preserving Value
Insights

Real Estate: Preserving Value

There was a definite air of positivity in European real estate markets in January and February 2022.

COVID restrictions had largely been lifted across Europe and the investment community was optimistic about the strength of the real estate market – fundamentals were solid, the occupational market was robust and there was a realistic level of achievable returns. And then late February arrived along with the invasion of Ukraine which, not in isolation, but led to the remainder of the year fraught with uncertainty.
And so, 2023 will be a year with a lingering layer of uncertainty attached to it. Investors are increasingly risk averse even though parts of the real estate market continue to support both income and growth, underpinned by robust structural drivers such as the continue march of online consumption and the lack of supply of quality housing at rent levels that are affordable. Preserving value will be at the epicentre and the forefront of investor intentions.
With energy costs having soared across Europe since March 2022 and interest rates following suit, this has refocused minds at several levels, where preserving and creating value for the future have really risen to the fore. Along with this, despite the fragility of some economies in Europe and the wait-and-see approach adopted by a number of real estate investors, there will also be opportunities. In times of more restrained capital growth, with income becoming a greater proportion of overall returns for the next few years a yield advantage strategy, combined with a top-down strategic approach, could lead to additional outperformance.
It is worth remembering for those with a vested interest in real estate that they need to try and look through the short-term haze and deploy strategies that answer to longer-term trends such as hybrid working and the continued shift of some consumption to online or the lack of the right sort of housing in the right areas. There is perhaps a misguided expectation that we are heading toward some ‘fixed state’. But real estate markets are always moving, and trends will continue to evolve and impact real estate, and the solutions the sector can deliver. It is often the years after a recession or significant upheaval that the real estate sector delivers and has the potential to offer the best vintage of investments.

Performance will vary, quality is key

As the price correction, that is already underway, continues to unfold there will be varied performance across portfolios which will largely depend on the quality of assets and the breadth of sectors those assets are in. As more and more occupiers look to secure space that provides them with higher levels of efficiency not solely in a bid to reduce costs, but also to attract and retain talent that are aligned to greener credentials. And this will increasingly come at the cost of brown discounts needed for older stock as green premiums for new stock is seen more and more as the norm and over time will not attract a premium but rather be expected – the balance of power continues to shift to occupiers. The resilience seen within the occupational sector over the last 12 months will lead to longer term capital preservation for landlords as they look to secure good quality space and it seems willing and able to pay for it.
Opportunities exist not only in retrofitting older stock if the balance between cost of doing so and potential income streams can be made to stack up given the inflated cost of materials and labour at the moment, but also in identifying overlooked areas with growth potential. Quality, be it immediately acquired in standing stock or realised through refurbishment and repositioning is the way forward, regenerating and/or strengthening city centres and urban areas.

Location

But location is important too, more so now than ever before. But what defines a ‘good’ location will vary depending on the sector. Offices for example, continue to go through the impact of the structural shift to hybrid working. Whilst the story has not yet ended and corporates continue to assess and test what strategy is best for them in a one-size-does-not-fit all world, what is increasingly obvious is that well-located offices that are accessible from a transport perspective, play a role in their communities with amenities in close proximity will be the ones that succeed and this will be at the expense of lower quality stock and lesser appealing locations.
Well-located leans to the urban centres and not just for offices. Urban centres are the hub of infrastructure such as schools and hospitals, roads and public transport networks, all of which have a role to play in a community and thus continue to be a draw for people, all of whom need somewhere to live. And this plays into the hands of the transition of the living sector from an alternative real estate class to a mainstream one. The sector has proven to be more resilient over the last 12 to 24 months. Housing is in high demand countered by low levels of supply and even lower levels of quality supply. Investors are prime placed to help bridge the supply gap while creating a positive social impact at the same time and capture both income and growth.
As the E in Environmental, Social, and Governance (ESG) becomes more a given than a nice-to-have, and is regularly embedded into the capex programme, attention is, and will, continue to be given to the social component of the equation, a large impact of which can be achieved through placemaking and delivering well thoughtout mixed-use developments. For example, if proposed regulation in terms of Energy Performance Certificate (EPC) ratings comes to fruition, there will be large swathes of residential stock that does not qualify to be let and is often in the hands of private landlords. This leaves opportunity in the market for investors to step in and not only upgrade parts of this stock though decarbonisation and digitisation but use the opportunity to create and influence the development of communities by not replacing a like for like, but instead perhaps replacing with a mixed-use development helping to create healthy, sustainable communities with a breadth of employment and growth potential.
So, in 2023 whilst we don’t have all the answers, the direction of travel is clearer.
22 December 2022
Joanna Tano
Joanna Tano
Head of Research, Columbia Threadneedle Real Estate Partners
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics
Listen on Stitcher badge
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics

PDF

Real Estate: Preserving Value

Important information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is an advertising document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.

Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. Risks are enhanced for emerging market issuers.

The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either.

Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This is an advertising document. This document and its contents have not been reviewed by any regulatory authority.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of the financial services it provides to wholesale clients in Australia. This document should only be distributed in Australia to “wholesale clients” as defined in Section 761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.

In the USA: Investment products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC.

In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.

In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

 

true
true

Important information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is an advertising document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.

Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. Risks are enhanced for emerging market issuers.

The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either.

Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This is an advertising document. This document and its contents have not been reviewed by any regulatory authority.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of the financial services it provides to wholesale clients in Australia. This document should only be distributed in Australia to “wholesale clients” as defined in Section 761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.

In the USA: Investment products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC.

In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.

In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

 

Related Insights

27 January 2023

Tammie Tang

Senior Portfolio Manager

UK Social Bond Fund

Senior Portfolio Manager Tammie Tang on the launch of this pioneering fund, its objectives and the evolution of the bond market.
Watch time - 9 min
27 January 2023

Tammie Tang

Senior Portfolio Manager

European Social Bond – five years old.

Senior Portfolio Manager, Tammie Tang, looks back on how the fund launched, what sets it apart and how the bond market is evolving.
Read time - 3 min
27 January 2023

Justin Ong

Senior Research Analyst, Asian Corporate Debt

Chuanyi Zhou

Asia Corporate Analyst

Firmer foundations for China’s property market in 2023

The Chinese property sector has been in the headlines over the past year, and not for the right reasons.
Read time - 6 min

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Investment Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.