There are few signs of weakness in the global property market, according to Clarion Partners, an international specialist which looks to differentiate itself by combining strong ESG principles in its property portfolio.
On a visit to Australia last week, Jeb Belford, portfolio manager and a managing director at Clarion, based in New York, said that fundamentals are still driving most sectors in the property markets. A recent challenge is for new developments to keep up with demand.
“The one place that there are signs of it being over-built is New York,” he said. “That hardly ever happens… Manhattan is always attractive, so New York is a real-time example of some possible over-building.” Nevertheless, residential property has been the best-performing sector for a long time, he says.
Fundamental drivers include the changes facing retailers due to internet purchasing and cultural shifts in demand, such as younger people moving to centres with good education facilities, which is a common theme among smaller cities, particularly in the US.
“The cultural shift is happening everywhere, though,” he says. “It’s to do with the rise of tech and new industries. We spend a lot of time analysing those growth trends.”
Clarion Partners, which is a member of the Legg Mason multi-affiliate family of fund managers, has a 36-year history in property investment and management. Most of its senior investment professionals have been with the firm for a long time. Belford has been there for 23 years.
The firm has US$50.3 billion under management (as of March this year), owning 1,235 ‘assets’, nine offices around the world and 296 employees (as of April 15). It believes that its scale and experience enhance deal flow and tenant relationships across all major property sectors.
The well-documented woes of the retail sector, due to the likes of Amazon, mean that re-purposing of big shops and shopping centres has become a trend. Clarion Partners, for instance, recently bought a shopping mall in southern New Jersey which it will “scrape” to develop into an industrial site. By industrial, they don’t mean manufacturing widgets so much as having modern warehouse and logistics facilities. In Europe, the firm has also brought on a new team with industrial/warehousing experience.
There are also interesting “pockets” in the market due to those cultural shifts, Belford says. “The growth in life sciences has produced an increased demand for new types of office buildings [with laboratories].
The demographic shift in the health care space is strong. Innovation in medicine is increasing at a rapid pace.” In the US, for example, this tends to produce “clusters” of like-minded organisations, such as in Cambridge, Massachusetts, south San Francisco, and San Diego. Belford says these clusters tend to be tightly held, from a property perspective, and difficult to build in.
In the residential sector, where Clarion Partners has been overweight for some years, the investments are attractive for investors who understand the multi-family concept. While the cultural shifts “are all playing into the hands of renters rather than owners”, he says, those changes are just at the margin. With multi-family dwellings (new apartment blocks and repurposed older buildings) roughly one-third are rentals and two-thirds are owners. “Before the global financial crisis the proportion got up to about 68 per cent owners, but this is now down to about 62 per cent,” he says.